One very simple and straightforward indicator shows that US Oil production has already reached its peak and may start declining in the coming weeks.
This guest blog post is written by Vladimir Bezruchenko
ABOUT THE AUTHOR: Vladimir Bezruchenkois an independent trader based in Kiev, Ukraine. He has been actively trading from home since 2013. He specializes in US natural gas futures (NYMEX Henry Hub) and high-yielding commodity currencies.
The oil market has been very weak over the past seven months. The price of a WTI contract went down more than 50% from its 2014 peak of $107 per barrel. Part of the reason for this dramatic sell-off is a resurgent US dollar, which is dragging down oil and commodities in general. However, oil got cheaper in virtually all major currencies (see graph below), meaning that other, more fundamental factors are also at play.
Most analysts agree that the main reason for the collapse in oil prices is a fundamental misbalance between supply and demand. While global consumption has remained broadly stable, global output went up. In fact, there has been a fundamental shift in the marketplace, as the growth in US shale oil production took off in 2011, leading to the erosion of OPEC’s global market share. Indeed, the United States has seen the most significant increase in oil production over the past four years thanks in large part to the technological breakthrough of hydraulic-fracturing and horizontal drilling.
US oil output rose from 5.2 million barrel per day (bpd) in January 2011 to 9.3 million bpd in February 2015. That whopping 67% increase could not have gone unnoticed for the global balance, especially given that US is the biggest consumer and second biggest importer of crude oil in the world. But now that oil lost half of its value, the big question is – can US oil companies sustain their production at current levels?
Analysts have disagreed as to the level of break-even pricing for US shale. What is indisputable, however, is that oil companies are already cutting on future capital investments and curtailing drilling activity. Still, the latest figures from EIA indicate that field production of crude oil reached a record of 9,324,000 barrels per day, even as the number of oil rigs declined 43% from the recent peak (see graph below). What is the reason behind this seeming divergence?
One possible explanation is that oil production does not fall together with rig count. There is a time lag.
If we look at the typical oil-well production curves (graph below), we will see that the output is huge during the first 30-60 days of operation. Production then slows and after about 150 days of operation, the output from the fracked wells falls dramatically (to about 50% of initial output).
Based on this information I have created a simple graph with just two variables: weekly oil production (from EIA) and oil rig count (from Baker Hughes). I then calculated a quarterly change in those variables and I assumed production to rig count lag of 140 days. Thus, the quarterly change in the number of rigs for April 8, 2011 corresponds with the quarterly change in oil production for August 26. This graph allows us to get a feeling of what to expect in future.
If these calculations are correct, than oil production has already reached its peak and from now on should only decline. Of course, a 40% plunge in rigs should not translate into a 40% decline in production in 140 days. What this graph shows is that we may be approaching a period when oil production growth starts running out of steam. We should probably see first q-o-q decline this spring and potentially witness a significant drop in output this summer.
This guest blog post is written by Vladimir Bezruchenko
ABOUT THE AUTHOR: Vladimir Bezruchenkois an independent trader based in Kiev, Ukraine. He has been actively trading from home since 2013. He specializes in US natural gas futures (NYMEX Henry Hub) and high-yielding commodity currencies.
The oil market has been very weak over the past seven months. The price of a WTI contract went down more than 50% from its 2014 peak of $107 per barrel. Part of the reason for this dramatic sell-off is a resurgent US dollar, which is dragging down oil and commodities in general. However, oil got cheaper in virtually all major currencies (see graph below), meaning that other, more fundamental factors are also at play.
Most analysts agree that the main reason for the collapse in oil prices is a fundamental misbalance between supply and demand. While global consumption has remained broadly stable, global output went up. In fact, there has been a fundamental shift in the marketplace, as the growth in US shale oil production took off in 2011, leading to the erosion of OPEC’s global market share. Indeed, the United States has seen the most significant increase in oil production over the past four years thanks in large part to the technological breakthrough of hydraulic-fracturing and horizontal drilling.
US oil output rose from 5.2 million barrel per day (bpd) in January 2011 to 9.3 million bpd in February 2015. That whopping 67% increase could not have gone unnoticed for the global balance, especially given that US is the biggest consumer and second biggest importer of crude oil in the world. But now that oil lost half of its value, the big question is – can US oil companies sustain their production at current levels?
Analysts have disagreed as to the level of break-even pricing for US shale. What is indisputable, however, is that oil companies are already cutting on future capital investments and curtailing drilling activity. Still, the latest figures from EIA indicate that field production of crude oil reached a record of 9,324,000 barrels per day, even as the number of oil rigs declined 43% from the recent peak (see graph below). What is the reason behind this seeming divergence?
One possible explanation is that oil production does not fall together with rig count. There is a time lag.
If we look at the typical oil-well production curves (graph below), we will see that the output is huge during the first 30-60 days of operation. Production then slows and after about 150 days of operation, the output from the fracked wells falls dramatically (to about 50% of initial output).
Based on this information I have created a simple graph with just two variables: weekly oil production (from EIA) and oil rig count (from Baker Hughes). I then calculated a quarterly change in those variables and I assumed production to rig count lag of 140 days. Thus, the quarterly change in the number of rigs for April 8, 2011 corresponds with the quarterly change in oil production for August 26. This graph allows us to get a feeling of what to expect in future.
If these calculations are correct, than oil production has already reached its peak and from now on should only decline. Of course, a 40% plunge in rigs should not translate into a 40% decline in production in 140 days. What this graph shows is that we may be approaching a period when oil production growth starts running out of steam. We should probably see first q-o-q decline this spring and potentially witness a significant drop in output this summer.
Vladimir Bezruchenko is an independent trader based in Kiev, Ukraine. He has been actively trading from home since 2013. He specializes in US natural gas futures (NYMEX Henry Hub) and high-yielding commodity currencies. I am independent, retail trader based in Kyiv, Ukraine. After four years in real estate, I made a 360-degree turn in my life and decided to pursue a career in financial markets. I quit my last job in September 2013 and have been actively trading since then. I specialize in US natural gas futures (NYMEX Henry Hub) and high-yielding commodity currencies.
UK Chancellor Jeremy Hunt Clashes with FCA over Controversial “Name and Shame” Policy
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
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Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
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Sandton Convention Center, Sandton, South Africa
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#fmas #fmas24 #fmevents #networking #finance #africa
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
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Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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