MacroVoicesJanuary 7, 2021 · 2021. 1. 7. · Labyrinth Consulting Services, Inc. artberman.com...

Labyrinth Consulting Services, Inc. artberman.com

MacroVoices January 7, 2021


-0.21 -0.08

-1.60

0.00

-1.02 -1.26

-0.32

0.12

1.190.79

7.47

8.93

0.41

1.38 1.31

100.79

92.71

82.57

91.16

93.47 93.97

75

80

85

90

95

100

105

110

115

-5

0

5

10

15

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

4Q20

E

1Q21

E

2Q21

E

3Q21

E

4Q21

E

WorldLiquidsSupplyandDe

mand(m

mb/d)

WorldLiquidsSupply-De

mandBalance(m

mb/d)

Source:OPEC,EIA&LabyrinthConsulting Services,Inc. OPEC/MarketIndicators/OPECSupplyDemandMaster

OPEC-EIA*expectsa-0.32mmb/dworldsupply-demanddeficitin1Q2021butasurplusfortherestof2021reachingamaximumof+1.38mmb/din3Q2021

NegativeBalance(LHS)

Supply(RHS)

PositiveBalance(LHS)

*OPECdoesnotforecastliquids supplybeyondthepresentquarter.Thisforecastusesatransformfor2020-21EIAtoOPECsupply.

2Q2020

1Q2021

mmb/d 3Q2020 4Q2020 2H2020 1Q2021 2Q2021 IH2021 3Q2021 4Q2021 2H20212021 SUPPLY 90.14 92.21 91.18 93.65 96.08 94.87 97.94 98.60 98.27

DEMAND 91.16 93.47 92.31 93.97 95.68 94.82 96.57 97.29 96.93S-DBALANCE -1.02 -1.26 -1.14 -0.32 0.41 0.05 1.38 1.31 1.35

3Q2021

Saudi Arabia’s solo production cut probably is because their demand forecast for 2021 has decreased from this December estimate


WTI is correctly priced at $47 spot priceIt is almost $4 over-priced at $50.80 futures price

$0$2$4$6$8

$10$12$14$16$18$20$22$24$26$28$30$32$34$36$38$40$42$44$46$48$50$52$54$56$58$60$62$64$66$68$70$72$74$76$78$80$82$84$86$88$90$92$94$96$98$100$102$104$106$108$110$112$114$116$118$120

-50 0 50 100 150 200 250

U.S.Crude +productscomparative Inventory (C.I.)mmb Source:EIA

,HSN

O&LabyrinthConsultingServices,Inc.-Aperio

EnergyResearch

Mar-June 2015FalseOptimism

WTIPrice($/barrel)

Dec '16- Apr '17Production-CutOptimism

WTIspotiscorrectlypricedatweeklyavgpriceof$48.02weekendingJanuary1Futurespriceof$50.42isabout$2.50over-priced

EIACurrent/W

eeklyUpdates/Crude

Oil&RefinedProductsInventories&CI

2013-14Optimism

Jan1$47.48.0

1

C.I. WTI1/1/21 30.11 $48.0212/25/20 37.99 $47.73Change -7.87 $0.29

Late2016Pessimism

35%excursionMar-July2020

PriceDiscoveryExcursion

Apr24 $3.32

Apr-Oct2018IranSanctionOptimism

$48.00


WTI comparative inventory should reach the 5-year average during Q1 2021Decline since mid-July resumed in mid-December after a 3-week increase

148 148

33

59

3830

$61.62

$53.14

$48.36

$24.41

$3.32

$40.57

$48.02

-100

-50

0

50

100

150

200

250

300

$0

$5

$10

$15

$20

$25

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$85

$901/3/20

1/10/20

1/17/20

1/24/20

1/31/20

2/7/20

2/14/20

2/21/20

2/28/20

3/6/20

3/13/20

3/20/20

3/27/20

4/3/20

4/10/20

4/17/20

4/24/20

5/1/20

5/8/20

5/15/20

5/22/20

5/29/20

6/5/20

6/12/20

6/19/20

6/26/20

7/3/20

7/10/20

7/17/20

7/24/20

7/31/20

8/7/20

8/14/20

8/21/20

8/28/20

9/4/20

9/11/20

9/18/20

9/25/20

10/2/20

10/9/20

10/16/20

10/23/20

10/30/20

11/6/20

11/13/20

11/20/20

11/27/20

12/4/20

12/11/20

12/18/20

12/25/20

1/1/21

1/8/21

Crude+RefinedProductCom

parativeInvneory(m

mb)

WTIPrice($/barrel)

Source:EIA&LabyrinthConsulting Services,Inc. EIACurrent/WeeklyUpdates/Crude Oil&Refined Products Inventories&CI

Oil Over-SupplyPositive C.I.

WTI(LHS)

ComparativeInventorydecreasedforthirdweekin-a-row6weeksforC.I.toreach5-yearaverageat-4.9mmb/weekmeandeclinerate

OPEC+Failure

OPEC+Cuts

mmb DECREASE PCT WEEKS AVG/WK WKS TO 5 YA

SINCE JUL 17 -118 -80% 24 -4.92 -6

Jul 17


4.13.6

8.6

20.3

1.9 1.6

0.3

4.3

3.8

7.9

19.1

1.61.2

0.2

3.43.0

5.3

14.5

0.7 0.70.1

138% 134%

79% 78% 72%

57%

29%

0%

50%

100%

150%

200%

250%

0

5

10

15

20

25

30

OtherOils Diesel Gasoline ProductSupplied Propane KeroseneJet Residual

PercentRecovery

CurrentWeekConsumption,5-YearAverageand2020M

inium(mmb/d)

ChartTitle

5-YRAVG

CURRENT

2020MIN

PCTRECOVERY

Source:EIA &LabyrinthConsulting Services,Inc. EIACurrent/WeeklyUpdates/Product SuppliedWeekly

U.S.refinedproductconsumptionrecoveryrosefrom73%to79%

Dieselandotheroilshaverecoveredtomorethantheir5-yearaverages

Gasoline,residual,propane,jetfuel&residualremainlessthantheir5-yearaverages

kb/d Other Oils Diesel Gasoline Product Supplied Propane Kerosene Jet Residual12/25/20 4,338 3,790 7,931 19,069 1,602 1,218 190

PCT RECOVERY 138% 134% 79% 78% 72% 57% 29%12/18/20 4,264 3,838 7,892 18,856 1,416 1,197 249

PCT RECOVERY 183% 93% 67% 78% 58% 53% 72%

U.S. consumption recovery reached a maximum of 84% in Novemberbut has been lower since then

Gasoline recovery is the main obstacle


• My earlier “thought experiment” forecast for lower U.S. production in late 2020 was wrong.• It was wrong because more shut-in wells were reactivated than I expected.• It was wrong because it was based on tight oil decline extrapolated to all U.S. production.• The model was too closely tied to the rig count decline curve.• Current forecast used all wells from the 4 states + Gulf of Mexico that account for 80% of U.S.

production.• It was carefully calibrated with production decline, number of producing wells, rig count and

DUCs.• Output decline has begun but more serious decline begins in late Q1 early Q2 2021.• Three cases suggest minimum rates of 7.8 to 9.9 mmb/d by Q3 2021.

U.S. production forecast update


7.52 7.44

5.87

5.78

4.183.97

-1000

1000

3000

5000

7000

9000

11000

13000

15000

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

Jan-16

Mar-16

May-16

Jul-1

6

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-1

7

Sep-17

Nov-17

Jan-18

Mar-18

May-18

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8

Sep-18

Nov-18

Jan-19

Mar-19

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Jul-1

9

Sep-19

Nov-19

Jan-20

Mar-20

May-20

Jul-2

0

Sep-20

Nov-20

12-M

onthLaggedTightO

ilProduction(m

mb/d)

ChartTitle

LAGGEDPROD USLAGGEDPROD

Octobertightoilrigcountis157,35%of450rigsneededtomaintain5.5mmb/dtightoil/11mmb/dtotalU.S.output

Tightoiloutputmaydeclineto3.5mmb/d&U.S.to6.5mmb/dinQ32021

Source: BakerHughes,EIADPR,Enverus&Labyrinth Consulting Services,Inc. RigCount/Rig CountCurrent/MONTHLY SHALEGAS-TIGHTOILRIG

LaggedTightOilProduction

(LHS)

LaggedU.S.Production(RHS)

Feb2021Prod

Aug 2021Prod

MayProd

Oct RC

Shut-inwells

Wellre-activation

AThoughtExperiment2021 TightOil U.S. EIAJan 5,841 11,117 11,096Feb 5,783 11,051 11,008Mar 5,494 9,587 10,960Apr 5,219 9,108 10,930May 4,175 8,197 10,942Jun 3,966 7,377 10,912Jul 3,173 5,902 10,907

Nov2019

May2016

Comparison of earlier tight oil forecast with observed total U.S. output to-date


1,006

846

178234

12.7

10.4

11.4

9.1

9.6

11.4

7.8

8.6

9.9 10.5

0

2

4

6

8

10

12

14

16

18

0

200

400

600

800

1,000

1,200

1,400

1,600Jan-18

Mar-18

May-18

Jul-1

8

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-1

9

Sep-19

Nov-19

Jan-20

Mar-20

May-20

Jul-2

0

Sep-20

Nov-20

Jan-21

Mar-21

May-21

Jul-2

1

Sep-21

Nov-21

Jan-22

Mar-22

May-22

U.S.CrudeandCondensateProduction(m

mb/d)

13-m

onthShifte

dU.S.Oil-DirectedRigCount

ChartTitle

CALIBRATEDRIGCOUNT PRODUCTION EIA LOWCASE HIGHCASE

BasecaseisforU.S.productiontofalltoalmost9mmb/din2021Itfallsbelow8mmb/dinthelowcase

Source: BakerHughes,EIA,Enverus&Labyrinth Consulting Services,Inc. RigCount/Rig CountCurrent/MONTHLY SHALEGAS-TIGHTOILRIG

Production(RHS)

13-monthshiftedoilrigcount(LHS)

Mar2021

EIA

Oct2020914

Nov2020rigcount

Low

HighBase

Sep2021

Updated forecast suggests production minimum by late 3Q 2021


9.66

8.53

12.86 12.74

10.02

10.42

11.18

10.96

11.36

6

7

8

9

10

11

12

13

14

15

16Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Oct-21

CrudeOilandLeaseCondensateProduction(m

mb/d)

Source:EIA914 &Labyrinth Consulting Services,Inc. EIACurrent/Monthly Updates/914U.S._crude_oil_production_2010-2020

U.S.oilproductionhasfallen-2.3mmb/d(-18%)from12.7mmb/d inMarch2020to10.4mmb/dinOctober 2020

EIAexpectsproductiontoaverage11.1mmb/din2021

Crude +CondensateProduction

Nov2019

Mar2020

May

Apr2015

Dec 2021

Sep2016

-1.1 mmb/d-11.6%

Oct

-2.3 mmb/d-18%

October production was -2.3 mmb/d less than March output of 12.74 mmb/dLatest EIA 914 data remains below STEO forecasts


Gulf of Mexico (-1 mmb/d) & Texas (-0.8 mmb/d) have fallen mostRest of U.S. has fallen -0.4 mmb/d, ND -0.3 mmb/d & OK -0.2 mmb/d

12,860 12,737

10,019

10,86110,419

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

0

1,000

2,000

3,000

4,000

5,000

6,000

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

Jul-20

Aug-20

Sep-20

Oct-20

U.S.CrudeOilandCondensateProduction(kb/d)

IncrememtalCrude+CondensateProduction(kb/d)

ChartTitle

Oklahoma NewMexico NorthDakota FederalOffshoreGulfofMexico RestofUS Texas TOTALUSPROD

2019-2020kb/d MIN Oct-20 MAX OCTVSMIN PCT OCTVSMAX PCTTexas 4,403 4,634 5,437 231 5% -803 -15%FederalOffshoreGulfofMexico 1,057 1,057 2,045 0 0% -988 -48%NorthDakota 864 1,218 1,519 354 41% -301 -20%NewMexico 808 1,081 1,111 273 34% -30 -3%Oklahoma 359 421 613 62 17% -192 -31%RestofUS 1,891 2,008 2,444 117 6% -436 -18%U.S.Total 10,019 10,419 12,860 400 4% -2,441 -19%

Source:EIA914 &Labyrinth Consulting Services,Inc. EIACurrent/Monthly Updates/914U.S._crude_oil_production_2010-2020

U.S.oilproductionis-2.44mmb/d(-19%)lessthan2019-2020maximum12.86 mmb/dOffshoreGulfofMexico(-48%)&Oklahoma(-31%)havefallenthemost

NewMexico(-3%)andTexas(-15%)havefallentheleast

Texas

Rest ofU.S.

Gulf ofMexico

NorthDakotaNewMexicoOklahoma

Incrementalkbo/d

TotalU.S.Production(RHS)


0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Jan-14

Mar-14

May-14

Jul-1

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Nov-14

Jan-15

Mar-15

May-15

Jul-1

5

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Nov-15

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Nov-20

OilProduction

(mmb/d)

ChartTitle

2015 2016 2017 2018 2019 2020

Jun2019

6months

8months 6months

7months

6-8monthsfromfirstoiltooffsetofdeclininglegacyproductionDatafromallTexas,NorthDakota,NewMexico,Oklahoma&GulfofMexicowells

80%ofallU.S.oilproduction

Source: Enverus&Labyrinth Consulting Services,Inc. RigCount/Rig Count Current/TX-OCS-ND-OK-NM OIL2000-2020_DECLINENOV2020

6months

8months

Total U.S. decline rate is 43% annuallyWell start to first oil is 140 days (~ 4.5 months)

First oil to legacy decline offset is another 215 days ( ~7 months)


6.95

6.28

10.45

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U.S.CrudeOil+CondensateProduction(m

mb/d)

ChartTitle

PriorYears 2015 2016

2017 2018 2019

2020 TOTAL

2020U.S.oilproduction*declinesat43%peryear

Ifnonewwellsweredrilled,totalU.S.productionwouldfall- 4.25mmb/dinoneyear

SourceEnverus&LabyrinthConsulting Services,Inc. RigCount/Rig Count Current/FO-ND-NM-OK-TXMergedVintagedCUM1980-2020

*dataincludesallwellsinFOGOM,ND,NM,OK,&Texaswhichaccountfor~80%ofU.S.output

5.71

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Oct-15

OilProduction

(mmb/d)

ChartTitle

PriorYears 2009 2010

2011 2012 2013

2014


In2014,U.S.oilproduction*declinedat22%peryearIfnonewwellsweredrilled,productionwouldfallabout0.9mmb/dinoneyear

*dataincludes allwellsinFOGOM,ND,NM,OK,&Texaswhich accountfor~80%ofU.S.output

U.S. decline rate has increased from 22% in 2014 to 43% in 2019Production would fall ~4.25 mmb/d today if no wells were drilled

vs about 1 mmb/d in 2014


1830

334

1,009

846

181

260

9.66

8.53

10.07

12.86

12.74

10.0210.60

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Apr-21

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Oct-21

Jan-22

U.S.Crude+CondensateProduction(m

mb/d)

Time-ShiftedOil-DirectedRigCount

2014-2021OilRCvsProduction

CALRC PROD

Annualdeclineratehasincreasedfrom22%to43%and-1.0to-4.3mmb/dbetween2015and2020productionandrigcountcollapses


Production(RHS)

Time-shiftedrigcount(LHS)

2015rigcountcollapse Mar2021

Aug2021

Technology Change

Mar2019

Apr2015Sep2016

Feb2015

May2020

Nov2019

Nov2017

Mar2020

2020rigcountcollapse

Jan2022

Nov2020

Rig count has been a reasonable guide to production since mid-2016when properly time-shifted to account for start-drilling to decline offset


297,041288,221 294,027

259,952

6.96.3

10.5

8.4

0

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18

-25,000

25,000

75,000

125,000

175,000

225,000

275,000

325,000

375,000

425,000

Jan-14

Mar-14

May-14

Jul-1

4Sep-14

Nov-14

Jan-15

Mar-15

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Jul-1

5Sep-15

Nov-15

Jan-16

Mar-16

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Jul-1

6Sep-16

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May-17

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7Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-1

8Sep-18

Nov-18

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Mar-19

May-19

Jul-1

9Sep-19

Nov-19

Jan-20

Mar-20

May-20

Jul-2

0Sep-20

Nov-20

CrudeOil+

CondensateProduction(m

mb/d)

NumberofProducin

gWells

ChartTitle

PriorYears 2015 2016 2017 2018 2019 2020

NumberofactiveU.S.wellshasfallenbymorethan34,000(-12%)sinceAugust2019Activewellsonlyfellby8,800(-3%)fromApril2015toMarch2016

duringthelastpricecollapse

SourceEnverus&LabyrinthConsulting Services,Inc. RigCount/Rig Count Current/FO-ND-NM-OK-TXMergedVintagedCUM1980-2020

*dataincludesallwellsinFOGOM,ND,NM,OK,&Texaswhichaccountfor~80%ofU.S.output

Apr2015 Mar2016 Aug2019

Sep2020

Production(RHS)

Number of active wells has fallen more in 2020 than at any other time


2,2992,423

2,340

0

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4

6

8

10

12

-700

-200

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800

1,300

1,800

2,300

2,800

Jan-16

Mar-16

May-16

Jul-1

6

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-1

7

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-1

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Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-1

9

Sep-19

Nov-19

Jan-20

Mar-20

May-20

Jul-2

0

Sep-20

Nov-20

Increm

etalDrilledUn

completedW

ellsSinceDe

cember2

015

ChartTitle

Eagle Ford Niobrara Bakken Permian TIGHTOILPROD

Niobrara

EagleFord

Permian

Bakken

LittleevidencethatdecliningDUCsareaffecting2020tightoilproduction

Source: EIA&LabyrinthConsulting Services,Inc EIA Current/ DUC-DPR/ duc-data_MASTER

*Incrementaldrilleduncompletedwellssince

December2015

-187% -1645%Bakken EagleFord Niobrara Permian

Dec-15 862 1364 868 1176Nov-20 806 1031 456 3516Change -56 -333 -412 2340

SinceDec2019 -32 -113 -121 117

Aug2019

Jan2017

Jul2020

Tight OilProduction(RHS)

Drilled uncompleted wells are not a greater factor now than during past 5 yearsTheir distribution has shifted more to the Permian basin than before


1,006

846

178234

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10.4

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9.1

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1,200

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1,600Jan-18

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Jan-22

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May-22

U.S.CrudeandCondensateProduction(m

mb/d)

13-m

onthShifte

dU.S.Oil-DirectedRigCount

ChartTitle

CALIBRATEDRIGCOUNT PRODUCTION EIA LOWCASE HIGHCASE

BasecaseisforU.S.productiontofalltoalmost9mmb/din2021Itfallsbelow8mmb/dinthelowcase


Production(RHS)

13-monthshiftedoilrigcount(LHS)

Mar2021

EIA

Oct2020914

Nov2020rigcount

Low

HighBase

Sep2021

With all that it mind…The forecast is probably optimistic

MacroVoicesJanuary 7, 2021 · 2021. 1. 7. · Labyrinth Consulting Services, Inc. artberman.com...

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Transcript of MacroVoicesJanuary 7, 2021 · 2021. 1. 7. · Labyrinth Consulting Services, Inc. artberman.com...