The number of U.S. oil rigs may be falling due to low oil prices, but only from mid-2015 onwards will it affect oil inventories, production rates and prices, say experts
Oilfield Services Company Baker Hughes said in its weekly report on Jan. 30 that the number of oil drilling rigs in the U.S. suffered the largest single-weekly drop since 1987 by falling 94 units week-on-week.
The commercial oil stocks in the U.S. revealed to be the highest in 80 years on a weekly basis, and 30 years overall, as oil inventories reached 413 million barrels, said U.S.' Energy Information Administration in its weekly petroleum data on Feb.4.
'There is a lag between rigs decreasing and production responding,' Dominic Haywood, a crude oil analyst for London-based energy market consultancy Energy Aspects, told The Anadolu Agency.
'Because the initial rig reduction typically occurs in exploratory and fringe areas which do not exhibit such a high level of output on a well by well basis,' he added.
According to a Goldman Sachs' research published on Dec. 15, data indicates that oil fields in the U.S.' Bakken in North Dakota, Eagle Ford in south Texas, and Permian basin along Texas and New Mexico have a commercial break-even price range between $80-$110 per barrel.
'There is a significant lag between the number of oil rigs decreasing and inventories falling,' said Thomas Pugh, a commodities economist at Capital Economics, a London-based independent research company.
'We expect U.S. oil production to peak around the middle of the year, and start to decline after that,' added Pugh, highlighting that the impact of oil rigs falling won't be seen on prices until the second half of 2015.
An energy economist based in the University of Houston in Texas also stressed that low oil prices have a negative impact on U.S. shale production.
'At these low oil prices, the U.S. shale plays will see much less drilling in 2015,' Ed Hirs told The Anadolu Agency on Jan. 8.
'The fast declines of the wells will reduce U.S. overall production very rapidly,' he said, adding that the country may lose one million barrels per day in production by the beginning of 2016.
The U.S. was producing over 9 million barrels per day in Dec. 2014, as the country expects oil output to average 9.3 million barrels a day in 2015, says the Energy Information Administration, while the agency projects oil prices to average $58 per barrel in 2015.
Oil prices have fallen around 60 percent in the last seven months, reaching their lowest level since March 2009, and recorded their fastest fall since 2008.
'Fundamentals in March look a little better in the U.S.,' said Haywood, warning that there are still many headwinds for the first half of 2015, underlining the relationship between refined products and oil prices.
'As refiners run cheaper crude oil, this will lead to increased refined production, and to higher refined product inventories,' he explained.
'Thus, the crude oil glut is transferred into the product glut, and if there is a surplus of refined products then crude oil demand will falter too, meaning oil prices will stay low until there is a supply-demand response,' he concluded.
By Ovunc Kutlu
Anadolu Agency
ovunc.kutlu@aa.com.tr