Daily Energy Report
Daily Energy Report
US crude production, China crude inventories, Russia price cap, US distillate storage, G7 coal gimmick, US/Russia uranium, OPEC+ oil cuts, US offshore wind, and more.
Chart of the Day: US Crude Oil Production at Record High for this Time of Year…. But!
Summary
US crude oil production recovered in February, according to the EIA. Production increased by 0.578 mb/d from that of January to 13.154 mb/d, the highest on record for this time of year. Year-on-year, production increased in February by 0.622 mb/d. Production declined sharply in January because of the freeze in several oil-producing states including Texas and North Dakota. It is worth noting that production in the Gulf of Mexico increased by 53 kb/d in February relative to that of January.
EOA’s Main Takeaway
Although production increased to the highest on record for this time of the year, it is still lower than the peak achieved last November of 13.295 mb/d by 0.141 mb/d. Compared to average production in the fourth quarter of last year, February production is lower by about 100 kb/d.
Has US crude oil production peaked? If it has, is it the final peak? Figure (2) illustrates the trend in US crude oil production in a way that is different from Figure (1). Panel A shows the sharp drop in January because of the freeze, then the recovery in February. We added Panel B for context. The decrease remains small by any standard, but is it a trend?
Here is our view:
1- Even if US crude production plateaus or decreases, the possibility of an increase in crude production below 45 API is high. That means most of the decrease is in condensates, not crude. However, as companies venture into new shale areas or zones, they might encounter gassier deposits, leading to a lower production share of crude below 45 API. But data shows they will retreat quickly under financial pressure from lower gas and NGLs prices.
The data supports our point. While production increased in various types of crude, it was flat for crude with an API of 45.1 to 50 and above 55! (The decline in medium-sour crude production was in the Gulf of Mexico.)
2- The argument that because we now see production in February lower than Q4 means oil prices will rise to $100/b or above doesn’t make sense. Here is why:
That oil was already traded in the market as traders watch the oil flow in the pipelines and in US ports.
As mentioned above, most of the time the decline will be mostly in condensates and not crude.
Story of the Day: China’s Crude Oil Inventories Increased
Summary
China’s crude oil inventories increased recently by a whopping 26.5 mb to 937.83 mb. This increase came at a time when a decrease was expected given high oil prices.