The number of wells drilled but not completed (DUCs) in the Permian Basin rose past 4,000 for the first time, according to the latest report from The Energy Information Authority (EIA).
At the end of November, the total for the 7 major onshore producing areas in the lower 48 states was 8,723. This was up 287 on the restated figure from the previous month. That’s six months in a row where the number has risen by at least 200.
Note that, every month, the EIA restate prior months’ figures, with revisions going back four years.
Completions were 1,307, up 9 on the restated figure from the prior month (but actually down 1 on the figure originally reported last month). This is the highest since March 2015. In the Permian Basin they rose by 3 but are still below the peak achieved in March 2018.
Production in the last couple of months has been 15,000-20,000 barrels per day (bpd) higher than the EIA originally estimated. The EIA is projecting increases of 123,000 bpd for December and 134,000 bpd for January.
In the Permian basin, oil production is estimated to hit 3.8 million bpd in January 2019. Production from new wells is forecast to be 309,000 bpd, offset by a 236,000 bpd decline from legacy wells. This results in a net increase of 73,000 bpd. The January forecast is up 1 million bpd on January 2018.
The price of WTI has fallen dramatically recently. Factors include;
- Increasing US production.
- OPEC announced production cut is less impressive than it initially appears as it is based on October production, which had ramped up in recent months. Remember also that there is some seasonality in oil demand and the first quarter is always the low point.
- Russia agreed to cut 400,000 bpd (Correction : Non-OPEC agreed to cut 400,000, Russia’s share was 228,000), but in recent days has said it will do this only slowly.
- Increased investor concerns that demand growth is softening.
- Hedge funds closing out their long positions.
In the past reduced production has occured 4-5 months after a major decline in WTI prices. Unless WTI rebounds soon, expect US oil production to stall at the beginning of the second quarter of 2019.