US oil output set to bottom out in June, will not recover to pre-COVID-19 levels in 2021- Rystad Energy

Must Read

We did not discuss Exxon; Guyana President says of meetings with Secretary Pompeo

During his meeting with U.S. Secretary of State Michael R. Pompeo, Guyana’s President Irfaan Ali said that he did...

Yellowtail could add another 220,000 bpd to Guyana output, 7 floaters on the cards – Hess

Though the Hammerhead area was targeted for the fourth development project in the Stabroek block offshore Guyana,...

Pompeo discusses leveraging Guyana’s wealth of natural resources with President Ali

Shortly after arriving in Guyana on Thursday, U.S. Secretary of State Michael R. Pompeo met with President Irfaan Ali, during...
OilNOW
OilNow is an online-based Information and Resource Centre which serves to complement the work of all stakeholders in the oil and gas sector in Guyana.

US oil production, which has steeply declined as low prices forced shut-ins, will reach a bottom of around 10.7 million barrels per day (bpd) in June, a two-year low, Rystad Energy estimates, before it starts to slowly recover. Still, US monthly output is not likely to exceed 11.7 million bpd before 2022, a staggering difference from the nearly 12.9 million bpd achieved in March 2020.

It was just months ago that US oil production was at an all-time high and seemed unstoppable. In November 2019, production reached 12.884 million bpd, only marginally higher than 12.855 million bpd in March.

After June 2020, oil production will recover a bit in autumn, ending at around 11.1 million bpd in December. Next year will not be the year of salvation: despite a gradual output increase, monthly production is expected to only touch 11.7 million bpd at the end 2021, according to Rystad Energy’s base-case price scenario, which assumes a $30 WTI oil price for 2020 and a rise to $39 for 2021.

“A major portion of the decline throughout 2Q20 stems from production curtailments and not from natural decline due to the collapse in frac activity,” says Rystad Energy’s Head of Shale Research Artem Abramov.

Production curtailments are now defined as a combination of complete and partial shut-ins of producing wells along with changes in standard operational patterns (i.e. delayed production on already fracked wells). With such a general definition, Rystad Energy said it estimates that total production curtailments (including all private operators) will peak at 1.65 million bpd in June 2020.

Natural decline assuming no curtailments exhibits a significant lag relative to the number of started frac operations which started declining already in March 2020. Natural decline accounts for only about 520,000 bpd of US oil decline throughout 2Q20.

In terms of the outlook, a material upward shift in the WTI price strip provides an economic rationale for the faster reactivation of significant curtailed volumes. “Our most recent discussions with E&P clients suggest that the actual degree of flexibility allows operators to bring back most of the curtailed volumes within weeks if such decisions are made,” Rystad Energy said.

The actual cash cost level for the majority of light oil wells is much lower than the current prices, but many E&Ps prefer to wait until 3Q20 to build confidence in improved market fundamentals. Rystad Energy now estimates that 65% of curtailed volumes will be reactivated throughout 3Q20 and another 20% will be put on production in 4Q20.

Thousands of stripper wells in the country will be left inactive before WTI crosses into the low 40s, but the contribution of these wells to the total production is marginal.

The reactivation of curtailed volumes will be sufficient to offset natural production decline in 2H20 and which is why we expect US oil production to bottom out in June 2020.

“The recovery will not be distributed evenly across major US oil basins and in fact, we expect the Permian and Gulf of Mexico (along with Alaska) to gain market share throughout 2020-2021. Yet even in the Permian Basin, we might need to wait until 2022 or a better oil price, before the basin can again achieve its 1Q20 production record of close to 5 million bpd,” Abramov concludes.

- Advertisement -

Latest News

We did not discuss Exxon; Guyana President says of meetings with Secretary Pompeo

During his meeting with U.S. Secretary of State Michael R. Pompeo, Guyana’s President Irfaan Ali said that he did...

2020 expected to be a ‘one and done’ recession as oil demand bounces back – API

The enormous challenges triggered by the COVID-19 pandemic this year have caused major disruptions to the global oil and gas industry resulting...

Yellowtail could add another 220,000 bpd to Guyana output, 7 floaters on the cards – Hess

Though the Hammerhead area was targeted for the fourth development project in the Stabroek block offshore Guyana, the high quality oil discovered...

Pompeo discusses leveraging Guyana’s wealth of natural resources with President Ali

Shortly after arriving in Guyana on Thursday, U.S. Secretary of State Michael R. Pompeo met with President Irfaan Ali, during which the two leaders discussed...

Department of Energy remains operational, actively involved in Payara negotiations – Vickram Bharrat

Guyana’s Minister of Natural Resources, Vickram Bharrat, told Members of Parliament on Tuesday that the Department of Energy (DE) remains operational and...

More Articles Like This