July 2, 2019 / 12:32 PM / 5 months ago

REFILE-COLUMN-U.S. oil production growth slows but OPEC+ should be wary: Kemp

(Corrects typographical error in signoff)

* Chartbook: tmsnrt.rs/2FNNj76

By John Kemp

LONDON, July 2 (Reuters) - The once booming expansion rate of U.S. oil production has begun to slow in response to the downturn in prices since the end of the third quarter of 2018, government production figures show.

U.S. crude and condensates production rose to a record 12.16 million barrels per day (bpd) in April, an increase of 1.69 million bpd or 16% compared with the same month a year earlier.

But the growth rate has slowed since peaking in the third quarter of 2018, according to monthly output data from the U.S. Energy Information Administration (“Petroleum Supply Monthly”, EIA, June 28).

Total crude and condensates production was up by just 1.52 million bpd year-on-year in the three-month period from February to April, down from a peak growth rate of almost 1.97 million bpd in August-October 2018.

Onshore production from the Lower 48 states, most of it from shale plays, grew by just 1.34 million bpd year-on-year in February-April down from 1.81 million bpd in August-October.

Slowing output growth is evident across all major oil-producing shale plays as firms ease the rate of new drilling and well completions in response to lower prices (tmsnrt.rs/2FNNj76).

In the Permian Basin’s Spraberry shale play, annual production growth has slowed to 300,000 bpd in March-May from 425,000 bpd in August-October.

Also in the Permian, Wolfcamp shale play production growth has slowed to 380,000 bpd from 490,000 bpd, while Bonespring growth is down to 130,000 bpd from 190,000 bpd.

Further north, in the Bakken, growth has slowed to 190,000 bpd from closer to 230,000 bpd, according to EIA estimates based on state agency figures.

Lower prices are gradually dampening the frenzied drilling and fracking boom in 2017 and 2018 and helping eliminate the forecast over-production in the global oil market.

ADJUSTMENT

Across the United States, the number of rigs drilling for oil has fallen by 95 or almost 11% since November and is down by 65 or 8% since the same point last year, according to oilfield services company Baker Hughes.

The slowdown in drilling is the worst since the slump in oil prices between 2014 and 2016, confirming the pressure on U.S. shale producers.

Employment in oil and gas drilling was still rising in May, according to preliminary data from the U.S. Bureau of Labor Statistics, which could be revised in the coming months.

But employment in support activities along the supply chain has been drifting down steadily since September 2018 (“Current employment survey”, BLS, June 2019).

Changes in oil prices generally filter through to drilling with a lag of three to four months and start affecting production with a total lag of nine to 12 months.

So the fall in oil prices since the end of the third quarter is likely to continue moderating oil production growth through the rest of 2019.

Despite the protestations of some shale firms about low breakeven prices, the data reveal the industry struggles when prices are much below $70 per barrel for Brent and about $65 for WTI.

But the data are also a warning to the members of the Organization of the Petroleum Exporting Countries and their allies about trying to tighten the global oil market too much and push prices higher.

Attempts to reduce global oil inventories and push prices much above $70 for Brent are likely to prove self-defeating, just as they were in 2018, because they are likely to trigger a resumption of the shale drilling boom.

Related columns:

- Lower oil prices start to rebalance the oil market (Reuters, June 4)

- U.S. oil output decelerates in response to lower prices (Reuters, May 1)

- U.S. shale boom set to cool in 2019 (Reuters, Jan. 22)

- U.S. oil output surges but growth likely to moderate in 2019 (Reuters, Nov. 1) (Editing by Edmund Blair)

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