Daily Energy Report
Gift of US shale, OPEC output drops, US oil & gasoline inventories, Permian gas production up 3x, Houthi ship attacks, Putin in Gulf, Venezuela escalates, EVs & oil future, and more.
Chart of the Day: The US Shale Revolution Brought a Massive Amount of Oil to the Market
Figure (1) above shows the trend in US crude oil production since 1920. Currently, the US is the largest oil producer in the world with a record-high production of 13.236 mb in September.
EOA’s Main Takeaways
Just imagine the world without the shale revolution. Where would oil prices be now? Would Europe be united against Russia? Would the US be able to impose sanctions on Iran and Venezuela? Would the US relations with Saudi Arabia be any different from what we have seen since Biden came to office? The economic and political impact of the shale revolution is of historic proportion, and that is why we call it a “revolution”. It is a failure of the US education system and the US media that citizens are unaware of the enormous positive impact shale (and oil/gas production more broadly) has had on their everyday lives.
The increase in US production from 2010 onward is about 7.64 mb/s. Most of it came from tight plays. But let us remember that the shale revolution not only halted the decline in US oil production, it also compensated for wells in decline. If we compare US production without the shale revolution to actual production, we estimate that tight plays added about 9.3 mb/d in 14 years. That is more than the combined production of three OPEC members: Iraq, Iran, and Algeria.
Story of the Day
In November, OPEC's oil output decreased for the first time since July, dropping to 27.81 mb/d, a reduction of 90,000 bp/d from October. This decline was mainly due to lower shipments from Nigeria and Iraq and continued cuts by Saudi Arabia and other OPEC+ members. Despite Iran reaching a five-year production high, the overall OPEC output fell. This drop aligns with OPEC+'s strategy to support market prices by controlling supply.
EOA’s Main Takeaways
Figure (2) below shows trends in OPEC crude oil production. But what matters to the market is supply, not production, which is exports. Although production decreased in November, exports increased as shown in Figure (3) below. However, we must be mindful of the lag between production and exports. A decline in production in November should show up in December. In other words, the increase in exports in November could be the result of an increase in production in October.
We will see a reduction in OPEC’s production and exports along with some OPEC+ members, but it remains to be seen if the reduction is larger than the decline in demand in the first quarter.
News of the Day
The EIA reported earlier today a decline of crude oil inventories by 4.6 mb to 445 mb as shown in Figure (4). However, gasoline inventories increased by 5.4 mb to 223.6 mb and distillates by 1.3 to 112 mb. Crude imports increased by 1.675 mb/d last week to 7.508. Exports decreased by 0.416 mb/d to 4.339 mb/d.
Gross inputs into refineries increased slightly from 16.416 mb/d to 16.537 mb/d, which led to an increase in refinery utilization from 89.8% to 90.5%.
EOA’s Main Takeaway
US oil inventories are at comfortable levels. Crude oil inventories are higher than that of the same period last year by 31.1 mb. Gasoline is higher by 4.5 mb. Only distillates are lower by 6.8 mb from that of last year. These numbers, in addition to lower demand growth and rising inventories in Asia (especially in China), are counter to our earlier expectations of a bullish fourth quarter. Slower demand than expected means a switch from the bullish scenario to the recession/low economic growth scenario. This latter scenario was considered in our outlook, but it was not our main scenario. The good news is that we caught the changes in trends early and we changed our views accordingly.
Supposedly, the EIA has solved the high adjustment numbers and the large swings, but the data show otherwise. The adjustment numbers and the large swings remain very high. For last week, the adjustment was about -9.8 mb!
Production of natural gas from oil wells in the Permian region's top tight oil plays has nearly tripled since 2018, reaching an average of 13.7 billion cubic feet per day (Bcf/d) in 2023. This growth is due to increases in crude oil production and the gas-to-oil ratio (GOR) in the Wolfcamp, Spraberry, and Bone Spring plays. In 2023, crude oil production in the Permian rose by 68%, while natural gas production increased by 104% compared to 2018.
EOA’s Main Takeaway
This news item goes along with the Chart of the Day above. What most people do not know is that the impact of the shale gas revolution on the world is larger than the impact of the oil part of the revolution. We are working on a report that we will release soon showing how the US gas revolution contributed to the oil price collapse in 2015. (Yes, we are talking about gas and its impact on oil.) This report will explain how the shale revolution led to decisions among OPEC+ members, and it contributed to the oil price war between Saudi Arabia and Russia in early March 2020. It remains the point of contention.
In previous reports, we discussed how companies are dealing with gassier areas and zones and how they shifted to lower API crude to avoid financial losses.
Saudi Arabia is concerned conflict in the Red Sea could escalate. The Iran-backed Houthis in Yemen have attacked vessels and targeted Israel, asserting solidarity with Palestinians. The group's aggressive stance has increased regional tensions, threatening crucial oil transit routes and raising concerns over missile and drone attacks across Saudi territory. Saudi officials have expressed satisfaction with the U.S.'s current handling of the situation but have urged caution for the days ahead.
EOA’s Main Takeaway