An Alarming Trend Is Developing In US Shale Oil Production

EIA oil storage report was fairly bullish today with the crude draw of 6.4 million bbls outpacing our forecast of -4.33 million bbls. More importantly in these weekly reports, we watch just how accurate we are at estimating US crude production. And so far, things are looking good.

Looking at our real-time US oil production data, we saw a brief spike in implied US oil production in March. Considering that the weather fully normalized in the 2nd half of February and into March, US shale oil producers likely brought back production to full capacity by early March and sold off stored-up inventory. This likely caused a dislocation in our modified adjustment, which showed a false bump higher in production.

Why do we say that it was temporary? Well, if you look at the latest reading, the implied US oil production figure is back down to ~13 million b/d.

Another good way for readers to gauge just how accurate we are on US oil production is by looking at our US weekly crude storage estimate figure vs the EIA. If our draw is smaller than what EIA reports, then it implies a lower US oil production figure than we estimated. If our draw is larger than what EIA reports, then it implies a higher US oil production figure. In essence, anytime the EIA comes in more bearish than our estimate, it implies a higher production figure, and vice versa.

Alarming Trend...

At some point over the next 18 months, oil analysts will have to change US shale oil into US shale NGL oil. Oil weighting in US shale oil producers is dropping at an alarming rate as Permian players become gassier and gassier. This is not a surprise to anyone who's tracked some of the best producers in the Permian. Diamondback Energy is a great example of this with oil weighting dropping from 74% in 2017 to 59% in 2023. The trend going forward will be a further decline in oil weighting, while both the NGL and natural gas components increase.

So why is this alarming?