US crude oil production growth slows down

Overall, the current US crude oil production has increased by 1.1 million barrels / day compared with the beginning of the year. From the perspective of the number of American oil rigs, it is another scene: at present, the number of active oil well rigs is 674, while the number of rigs at the beginning of the year is 877, with a decrease of 23% in the year. Why is there such a sharp contrast between US crude oil production and the number of rigs? When will US crude oil production peak? According to the EIA weekly data, as of November 8, crude oil production in the United States reached a new high of 12.8 million barrels / day. Oil prices fell sharply after the EIA data was released, as investors worried that US crude oil production would take another step after the bottleneck of us pipeline capacity was eased, hedging OPEC's production reduction. From the perspective of shale oil production process, the producers first drill oil wells through drilling rigs, then complete the well and install acquisition equipment, and finally exploit shale oil. However, in the first month of new well exploitation, due to the backflow of hydraulic fracturing fluid, the flow of oil and gas is limited, and the production of new well is the largest since the second month, but after the third month, due to the attenuation effect of shale oil, the production begins to decline gradually. The continuous production of new wells is the main source of shale oil production growth in the United States.

Only when the production of new wells exceeds the attenuation of old wells, the shale oil production in the United States will increase. According to the methodology of EIA drilling rig report, we can analyze the shale oil production of new wells from the current number of active drilling rigs and the production efficiency of single drilling rig, while the attenuation of old wells can be estimated by referring to the attenuation data of EIA drilling rig report and the attenuation curve of shale oil. From the number of drilling rigs released by Baker Hughes company, the number of active oil and gas drilling rigs in the United States has continued to decline since the beginning of 2019, but in addition to the number of drilling rigs, the production efficiency of drilling rigs is also an important factor affecting shale oil production, mainly because when the number of drilling rigs drops, producers tend to improve production efficiency to stabilize crude oil production. What is the rig production efficiency? In fact, it refers to the shale oil production corresponding to a single drilling machine. We can study this index separately by dividing it into three items: monthly average drilling number of a single drilling machine, well completion rate and shale oil production of a single well. The average monthly drilling number and single well production of the drilling rig basically have little change. The main factor driving the recent increase of drilling rig efficiency is the substantial increase of well completion rate.

According to EIA data, the current completion rate is about 1.17, which means that the current completion number exceeds the drilling number, that is, the production of Duc well begins to release continuously. However, the number of Duc wells is limited, and due to the attenuation effect of the oil field, the incremental effect of production release of Duc wells on the later shale oil will gradually decrease. If we refer to the release of Duc wells in 2016, the monthly release of Duc wells is about 100, but considering that the current inventory of Duc wells is far higher than that in 2016, it is estimated that the current release rate of Duc wells is higher than that in 2016, we estimate the contribution of the release rate of Duc wells in 100 / month, 150 / month and 200 / month to the new production of shale oil in the later period, and we can get the fourth quarter page of 2019 The increment of shale oil is between 65000-75000 barrels / day and 24000-67000 barrels / day in the first quarter of 2020, with obvious attenuation effect. In addition, although the absolute value is still increasing, the growth rate starts to slow down gradually. According to the ratio of current decline and rig efficiency, we can estimate the number of rigs needed to maintain the current production. At present, the number of active rigs is still higher than the number of rigs needed to maintain the current production, indicating that the new production of new wells is higher than the decrement of old wells. Therefore, although the current growth rate of crude oil production in the United States slows down, it still keeps a positive growth, which is the fundamental reason why the number of rigs and the crude oil production in the United States are reversed this year.

In the later stage, if the current rig efficiency is assumed to remain unchanged and the decline rate of the number of rigs is maintained at the average decline rate of about 25 sets / month this year, it is expected that the number of rigs in December will fall below the minimum number of rigs required to maintain production. However, considering the gradual improvement of drilling rig efficiency (mainly the impact of the release of Duc wells on production), and assuming the release rate of Duc wells is 150 wells / month, shale oil production in December still has room for growth, and the time when shale oil production in the United States begins to decline is expected to be postponed to January February 2020, which will form a certain support for oil prices. In addition to the increase of crude oil supply in the United States, non-U.S. supply and demand expectations and other factors also have a greater impact on the oil price. The main factor supporting the upward trend of oil price is the improvement of high macro environment in recent US stock market innovation. In addition, the December OPEC ministerial meeting will also be the key variable to determine the later crude oil supply, but the current situation is not clear. On the one hand, Saudi Aramco is going to be listed, and Saudi Arabia has the power to further reduce production to improve the oil price and the valuation of Aramco; on the other hand, the growth rate of US crude oil production slows down and the international trade situation improves or reduces the probability of OPEC further reducing production. Under the influence of favorable factors such as unsustainable growth of crude oil production in the United States, marginal improvement of macro environment, and geopolitical risks, there is no basis for a sharp drop in oil prices. However, it is still necessary to pay more attention to the OPEC production reduction meeting in December.