A survey by the oil data firm Platts, showing that shale oil production rose again in the US last month, contributed to a souring mood in the oil markets yesterday after three weeks of gains that helped to recover some ground lost in recent months.
The survey, released on Tuesday in Houston by Platts’ forecasting unit, Bentek Energy, showed that production from key shale oil producing areas in Texas and North Dakota increased in January by a total of 28,000 barrels per day, or 1 per cent, above the previous month’s levels.
Production in the Eagle Ford area in south Texas was put at 1.6 million bpd last month, up 37 per cent from the same month a year earlier, Bentek figures showed. That was despite a sharp drop recently in the number of rigs used in the area.
Benchmark North Sea Brent crude oil futures retreated yesterday and were down 93 cents at US$61.60 a barrel in early afternoon trading in London.
The rise in Brent futures since January’s low point of $46.59 has not been matched by futures in the US, where the gap over the past month has widened from less than $1 to nearly $10 as the market there remained saturated with supply.
West Texas Intermediate crude futures were down $0.53 in early New York trading yesterday at $53.08.
US shale producers appear to have been able to continue producing at higher rates even as oil prices slumped in recent months because they had sold some of their oil ahead of time, using hedging strategies, and by getting more output from their cheaper operations, said Bentek’s head of energy analysis, Catherine Bernardo.
“Many producers have the cushion of hedging programmes in place, which is helping them minimise the impact of the current oil price environment and continue production,” she said. “Other producers are likely focusing their efforts on their more prolific, higher production rate acreage.”
Crude oil production in North Dakota’s Bakken shale formation averaged 1.2 million bpd last month, up 28 per cent on the year earlier, according to Bentek.
That put combined output from Bakken and Eagle Ford up 33 per cent on the year, with overall US crude oil production 1.5 million bpd higher.
US oil production has become the key barometer for the oil market since Saudi Arabia-led Opec decided at the end of November to keep pumping oil at an average above 30 million bpd, even though the rise in US output has left the global market chronically oversupplied.
Although there have been many signs in recent weeks that lower oil prices, which peaked last summer above $115 per barrel, are hitting investment in future oil projects, the resilience and adaptability of the US shale sector has meant output there has kept rising.
In their quarterly outlook, analysts at Energy Aspects called the focus on the falling number of oil rigs in use in the US a “red herring”, as it will take time for lower spending to translate to lower production. They do, however, expect production growth to be much lower this year – 300,000 bpd lower than previously forecast, at 500,000 bpd – as the estimated 30 per cent drop in capital spending bites.
“Production will respond, but with a delay,” Energy Aspects’ quarterly outlook predicts.
As well as shale oil production, the other key short-term indicator to watch in the US is commercial crude oil inventories, which stood at nearly 16 per cent above last year’s levels when the US government’s energy information agency reported last week. The next report is due today.
amcauley@thenational.ae
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