U.S. Crude Oil Reserves Decline, but Global Glut Remains

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Researched by Industrial Info Resources (Sugar Land, Texas)--A report Wednesday from the U.S. Energy Information Administration (EIA) said that U.S. crude oil reserves had declined by 2.2 million barrels last week. This was welcome news to many and a cause for modest gains in the prices of Brent and West Texas Intermediate (WTI) crude oils. Several weeks of declining rig counts and well completions seem to be having some effect on U.S. output. The decline put U.S. oil stocks at 484.84 million barrels, and marks the second week in a row that there has been a drawdown.

However, the declines in U.S. oil reserves are having only a modest effect on global oil supply, particularly as the Organization of Petroleum Exporting Countries (OPEC) continues ramping up production. Several reports this week suggest that a global drawdown on crude oil supplies will not occur anytime soon.

A report from OPEC earlier this week states that its 12 member countries increased crude-oil production by 18,000 barrels per day (BBL/d) in April to 30.84 million BBL/d. This increase comes after dramatically ramping up production in March by 850,000 BBL/d. Most of April's increase comes from Saudi Arabia, which reported record-high monthly production of 10.31 million BBL/d for the month, an increase of 13,700 BBL/d from March.

The EIA's most recent Drilling Productivity Report, released May 11, forecasts that oil production from the major shale oil regions in the U.S. will decline by 86,000 BBL/d in June, including a drop of 31,000 BBL/d in the Bakken Shale and 47,000 BBL/d in the Eagle Ford Shale. In its monthly Short-Term Energy Outlook, also released this week, the EIA says that it expects U.S. oil production to decline for the four months from June through September, after which growth will resume.

The agency lowered its overall U.S. production outlook for both 2015 and 2016 to 9.2 million BBL/d for both years, representing a 40,000-BBL/d decrease in 2015 from its previous forecast and a 100,000-BBL/d decrease for 2016. Despite the decrease in U.S. production, the EIA still foresees global inventory building for the entire year, averaging 1.8 million BBL/d for the first half of the year and 900,000 BBL/d in the second half. OPEC's strategy to retain market share appears to be having some success, as it ramps up production while U.S. production is forecast to decline.

The International Energy Agency (IEA) (Paris, France) also commented on the global dynamics: "In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked. Following months of cost cutting and a 60% plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating." The IEA said that global crude oil supply in April 2015 was up 3.2 million BBL/d from April 2014.

However, as oil prices continue their upward trajectory, certain U.S. shale producers already are mulling renewed drilling and well completions. So any significant decline in production will probably be short-lived, especially as U.S. producers are able to profit in a reduced-price climate because of increasing efficiencies and technologies in the drilling and extraction process. For more information, see May 7 article - Shale Oil Producers Tentatively Gear Up for Increased Production.

The decline in U.S. reserves currently represents only a small blip in any meaningful reduction in the world's oil supplies, and only time will tell when and how the world will escape the current oil glut.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and ten international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.