(WCTW) An Alarming Trend Is Developing In US Shale Oil Production (Part 2)
Please read part 1 of the report.
EIA released its monthly US oil production figures for February, showing a material rebound. At 13.154 million b/d, US oil production increased by ~600k b/d m-o-m. The rebound was entirely expected as the drop in oil production in January was related to the weather.
In a report we published on April 1 titled, "US Oil Production Is A Lot Uglier Than You Think." We said:
First, it's important to remember that January experienced a very severe snowstorm that shut-in US oil production. We saw this in real-time in natural gas production data.
Since then, Lower 48 gas production has recovered and our real-time US oil production figure puts the average around ~13.148 million b/d for February.
Factoring in the adjustment in the February PSM report, EIA's total US crude oil production came in at 13.241 million b/d versus our 13.147 million b/d.
Expectations...
Our expectation coming into this monthly production report was for a negative adjustment. This was to account for the overstated US oil production + adjustment reported in December 2023. However, EIA's report shows a positive adjustment of 87k b/d for February, which resulted in the 13.241 million b/d being reported.
As you can see in our estimate versus EIA 914 + adjustment, following the June 2023 introduction of "transfers to crude oil supply", the figures have been extremely volatile. For readers wondering how we are combating this volatility, we are simply averaging out the EIA 914 + adjustment on a 2-month rolling basis.
In this case, January was likely understated by ~300k b/d at ~12.5 million b/d versus our ~12.8 million b/d, while February was overstated by ~150k b/d. In aggregate, the average for January and February is 12.87 million b/d.
What to expect for March?
This is where things get tricky. According to our real-time US oil production tracker, implied US oil production jumped to ~13.5 million b/d. But we think a lot of that has to do with the destocking of inventory post the freeze-off in January. In our weekly US crude storage estimates, we saw EIA report 12 million bbls higher than our estimate, which equates to ~387k b/d. Taking this into account, we have US oil production for March coming in at 13.2 million b/d, or ~50k b/d higher than what was reported in February.
For April, we have US oil production falling back to ~12.9 to ~13 million b/d. So far, EIA weekly crude storage figures have surprised to the downside versus our estimate, and we expect that trend to continue.