The oil market is moody as the market is trying to balance a -3.595 million barrel drop in crude supply against a 1.402-million-barrel increase in gasoline supply and a larger 2.048-million-barrel jump in distillates. The American Petroleum Institute did report a drop of 462,000 barrels in Cushing, Oklahoma which is a sign that we are seeing supply drop in the key delivery point. So, while the oil market floats during seasonal weakness, the signs are becoming clearer that the global oil market is getting in balance as US oil production is headed towards a short-term peak.
Peak shale oil production is a concept that we saw coming and when we started to warn about this, most people could not conceive that it was possible. Yet now we are hearing warnings about a top in US production by people inside and outside of the industry. As big oil companies look to cut back and reduce debt, change CEO’s like Chevron and Exxon, the top in production is closer and the continuation of the generational bottom in oil that we talked about last year is being solidified.
We covered it in our “Summer Solstice” turning point report and in an article and on air on the Fox Business Network. Yet what seemed like a crazy idea now is coming true and remember you heard about it first from me on the Fox Business Network. In fact, in a report by Senior Economist Erik Norland at the CME Group he is asking whether US oil production is about to peak. He brings up many of the same points that I have been making about what we see is an overconfidence in oil production to expand in the current price environment. As oil supplies fall for the first time in three years, it is becoming apparent that US shale is no match for OPEC production cuts. Norland says that output could still rise over next few months before falling but should peak at about 9.75 million barrels per day.
The number of operating oil rigs plateaued at just over 750 in July, according to data from oil services provider Baker Hughes. This by itself may point to a decline in U.S. oil production. However, it takes, on average, about four months or so for an oil rig to begin producing significant amounts of oil, although time lags can be vary considerably depending upon the equipment and the field. And, there are about 100 more rigs operating today than there were four months ago. This suggests the possibility of some further upside for oil production over the next few months.
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