OILX - OPEC MOMR August 2023
2023-08-22 05:53:00 ET
Summary
- OPEC crude output was revised lower in May and June 2023, falling below the 2018 peak.
- Global liquids production decreased in July 2023, but has increased by about 3.9 Mb/d in the past 23 months.
- OPEC expects US tight oil output to increase in 2023 and 2024, but estimates may be optimistic.
The OPEC Monthly Oil Market Report (MOMR) for August 2023 was published recently. The last month reported in most of the OPEC charts that follow is July 2023 and output reported for OPEC nations is crude oil output in thousands of barrels per day (kb/d). In many of the OPEC charts that follow the blue line with markers is monthly output and the thin red line is the centered twelve month average (CTMA) output.
OPEC crude output was revised lower in May 2023 by 15 kb/d compared to last month’s report and June 2023 OPEC crude output was revised lower by 43 kb/d. When the World was at its CTMA peak for C+C output in 2018, OPEC crude output was about 31300 kb/d and by July 2023 OPEC crude output had fallen to roughly 3990 kb/d below the 12 month average peak in 2018.
Preliminary data indicates that global liquids production in July decreased by 0.2 mb/d to average 100.7 mb/d compared with the previous month. World liquids output increased about 3.9 Mb/d in the past 23 months (from 95.8 Mb/d in August 2023).
OECD commercial oil stocks increase by 4.2 Mb in June 2023, at 2828 Mb, they were 74 Mb lower than the latest five-year average. World Oil stocks are likely decreasing with the recent OPEC cuts. Also note that this chart looks at commercial stocks only. In the first half of 2023, OECD SPR stocks have decreased by 30 Mb after decreasing by 270 Mb in 2022.
If OPEC continues to produce at the July 2023 level of about 27 Mb/d of crude oil, we will see a significant draw in World Oil stocks, assuming OPEC estimates for Non-OPEC Oil Supply and World Oil Demand are correct. My expectation is that the World Oil Market will become very tight and oil prices should rise, unless OPEC increases output to balance the Oil Market.
OPEC expects US tight oil output to increase by 760 kb/d in 2023 compared to 2022 (annual average output) with 650 kb/d from increased Permian basin output. In 2024 OPEC projects an increase in annual average US tight oil output of 490 kb/d with 440 kb/d coming from the Permian basin.
The OPEC estimates are optimistic in my opinion, my best guess is an increase of 723 Kb/d in US tight oil output in 2023 and an increase of 358 kb/d in 2024.
The estimate above assumes average well productivity does not change in the future as a model simplification. As the most productive areas of tight oil plays become fully developed, less-productive areas will need to be developed and this will likely lead to falling average new well productivity though we do not know when this will begin or how rapidly it will progress.
The chart above considers well profiles for the Permian Basin from 2016 to 2021 with EUR normalized for 10 thousand feet of lateral length, these well profiles are barrels of C+C and do not include natural gas or NGL output. I do not show the well profiles from 2013 to 2015, over this period EUR per 10k feet was increasing, but by 2016 it seems proppant loads and frack stages per 1000 feet of lateral were close to optimal. Increasing lateral length over the 2016 to 2021 period reduced output per foot of lateral for the average Permian well.
EUR normalized for a 10k lateral length (the approximate average lateral length in 2022) fell from 502 kbo in 2016 to 476 kbo in 2021. The average annual rate of decrease was about 0.84% per year over that 5-year period. It is unclear if this decrease is due to increased lateral length which would increase frictional losses along the length of the well, especially when the well has been placed on artificial lift and tend to reduce normalized EUR or due to fewer high-quality areas to develop new wells. It may be a combination of the two factors.
For the Permian basin there have been about 25000 new wells completed from the end of 2015 to the end of 2021, if we assume all of the decrease in normalized productivity per 10k of lateral length has occured due to lack of quality areas to drill new wells we can adjust future productivity so that for each well developed, the productivity falls by 5% for every 25000 wells completed as was the case from 2016 to 2021. The chart below compares two scenarios for the Permian basin where the EUR remains at the 2020 productivity level in the future for the no EUR decrease scenario and a second scenario where productivity decreases by 5% for every 25k new wells completed. About 63000 wells are completed for the two scenarios after December 2021.
The scenario with the EUR decrease is about 2 Gb less than the no EUR decrease scenario (40 Gb vs 42 Gb). Note that some of the 5% decrease in EUR from 2016 to 2021 may have been due to the increasing average lateral length over that period, though we do not know what proportion is due to this effect rather than decreasing high-quality areas for development. Reality is likely somewhere between the scenarios shown above if average lateral length eventually stops increasing due to diminishing returns to increased lateral length.
Above is my best guess for US tight oil output, this scenario assumes no average EUR decrease in the Permian Basin, other tight oil plays are assumed to see some decrease in new well EUR. An assumption that Permian EUR decreases at 5% per 25000 wells completed would reduce URR by roughly 2 Gb and the peak would be about 200 kb/d lower, roughly 9400 kb/d.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
OPEC MOMR, August 2023