Oil price crash to have two million barrels per day impact in USNews // February 10, 2015
New analysis by Gaffney, Cline & Associates (GCA) as part of its ongoing market watch programme GCA Monitor, has suggested that by the end of 2016 US production could be some two million barrels per day lower than where it would have been without the oil price crash.
With forecasts by the Energy Information Administration (EIA) and others suggesting that production of unconventional oil in the US is actually likely to increase slightly over the next two years, such a conclusion may at first glance appear contrarian. However this is not actually the case.
GCA executive director and senior strategic advisor Bob George said: "Based on GCA’s review of EIA and public data from the Bakken, if the oil price crash had not happened and rig count had stayed steady, then that play would probably have added a further 500,000 to 600,000 barrels of oil per day by the end of 2016. Cutting the rig count significantly takes away this growth but doesn’t cause production to fall like a stone.”
GCA petroleum economist Cecilia Jing Cui added: “In its January 2015 forecast, the EIA has US oil production continuing to rise steadily to one million barrels per day above its 2014 year end level, by the end 2016. The results of our work suggest that despite the expected sharp drop in capital expenditures and rig count, under most scenarios production over the next two years is not expected to drop from current levels, and may even continue to increase.
“However, this does reflect a sharp fall from where it might otherwise have been. Extrapolating the Bakken production analysis to all US unconventional production would result in a difference of some 1.5 million to two million barrels of oil per day from what might have been.”
GCA senior geologist Neil Abdalla also pointed to another factor that could impact forecasts, based upon some recent operator comments: “There is also a 'storage scenario' which involves drilling but not completing wells straight away.
"This seeks to defer flush production in the hope of capturing a price recovery or spike. It is somewhat analogous to players who are renting tankers to buy crude today, store it and then release it back into the market when prices are higher. The scenario may also explain in whole or part, the sharp rise in oil price as players speculating in the market also seek to drive up the futures market and lock in early profits.”
The full paper can be accessed here: