Is Trump Right About Falling U.S. Oil Output?

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By Julianne Geiger

U.S. President Trump on Monday said that U.S. oil producers were already cutting production as a natural consequence of the market. But are U.S. producers really cutting production yet, or is that magical thinking?

“Well, I think it’s automatic. Because they’re already cutting. I mean, if you look, they’re cutting back. Because it’s… it’s market. It’s demand. It’s supply and demand. They’re already cutting back, and they’re cutting back very seriously,” U.S. President Trump said at a Monday evening press briefing on the coronavirus when asked whether he would ask U.S. producers to reduce oil production at the request of OPEC. President Trump added that “Well, nobody’s asked me that, so if they ask me, I’ll make a decision, okay? But again, it’s happening anyway.”

Meanwhile, the Energy Information Administration (EIA) shows that oil production in the United States is holding steady at a near all-time high of 13 million bpd. But these figures are estimates based on short-term projections–so not exactly real-time data.

Who’s right?

Rig Count Indications

Signs are pointing toward a sharp drop off looming, or already here, for U.S. oil producers. Oilfield services provider Baker Hughes has reported that in the last reporting period, the U.S. active rig count for oil and gas fell by 64 rigs–the largest single-week drop in five years. It brought the rig count down to 664 active rigs, which is the lowest level in over three years.

U.S. Producers 

Ryan Sitton, one of the commissioners for the Railroad Commission of Texas, has pressed oil producers in the state–who together produce 41.4% of the country’s petroleum and other liquids–to curb production output.

U.S. Producers

Chevron (NYSE: CVX), The Permian: The U.S. giant announced weeks ago that it was cutting capex by $4 billion–half of which would be to upstream unconventionals in the Permian Basin. The cuts will translate into 125,000 fewer barrels for that area that it had forecast.

Continental Resources (NYSE: CLR), the Bakken: Continental, one of the top producers in the Bakken in North Dakota and Montana, moved decisively this week to cut production by 30% for April and May. The company said it was implementing the cuts, “to meet the demand destruction attributable to COVID-19.”

Exxon (NYSE: XOM), The Permian: Exxon announced on Tuesday this week that it was slashing spending by $10 billion this year, and that most of the cuts would be realized in its operations in the Permian Basin. The reason that the cuts will be mostly in the Permian is because this is where the short-cycle investments can easily be adjusted to respond to demand. It’s not necessarily clear that this capex reduction has translated into production cuts in America’s most prolific basin.

Texland Petroleum L.P., the Permian: Texland Petroleum, focused in the Permian Basin, has already cut back production and expects that by May 1, all 1,211 of their wells will shut down as refiners cut back their processing in response to waning fuel demand.

Flaring

Other signs that U.S. production is slowing is flaring cutbacks. According to Rystad Energy, flaring in the Permian reached a high in November last year. But in the first quarter of this year, Rystad said, flaring fell to the lowest levels since Q3 2018, with further output cuts expected to continue to reduce flaring.

Cuts from around the World

Russia: Russia’s production has slowed already in April, even without an agreement, from 11.29 million bpd in March to 11.25 million bpd so far in April. A Russian government official said that it didn’t make sense for Russian firms to boost oil output in an oversupplied market.

India: India’s Vedanta Ltd is cutting back production from 1om somewhere between 180,000 and 190,000 bpd, to 160,000 bpd, as one or more of the refineries it supplies are taking oil at reduced rates.

Brazil’s Petrobras: Brazil’s state-run oil company, Petrobras, said on Tuesday that it had approved an oil production level of 2.07 million bpd for this month, which it plans to hit by monitoring its production. Brazil’s production hit a high of 3 million bpd late last year. Brazil has been invited to the OPEC+ production negotiations later this week, and it is a crucial player, with OPEC seeing the nation as having the third-highest prospect for supply growth this year–at 310,000 bpd–behind only the United States and Norway.

It would seem that even without an agreement, production cuts are inevitable. With storage near capacity and the price of WTI below $25 per barrel, oil companies are left with no choice but to curb demand as refiners call for less crude.

Some U.S. producers are already cutting production, and others are making preparations to follow. Still others will likely be forced to curb production in future days.

Crude Oil

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