U.S. Shale Oil Growth Slows as Price Crash Idles Drill Rigs

A Worker on a Drilling Rig
Analysts are watching the rig count to help forecast U.S. production. Photographer: Brittany Sowacke/Bloomberg

The biggest slowdown in oil drilling on record is showing signs of reining in the U.S. shale boom.

U.S. shale oil output is expected to post the slowest growth in more than four years in April, the Energy Information Administration said Monday. That follows a 41 percent plunge since December in the number of drilling rigs seeking oil.

A slowdown in U.S. output would come at the same time that refineries are expected to return from seasonal maintenance and bring relief to an oil market that has seen prices decline more than 50 percent since June. Companies had 444.4 million barrels of oil in storage in the U.S. as of Feb. 27, the most in weekly records dating back to 1982.

“You have refineries coming back out of maintenance, and production getting cut back,” said Carl Larry, head of oil and gas for Frost & Sullivan LP in Houston. “Everything could come together where, all of a sudden, everyone thought there was plenty of supply and there’s not.”

Oil production from six major U.S. shale plays will be 5.6 million barrels a day in April, an increase of 298 over March, according to the EIA’s estimate. It’s the smallest projected increase since February 2011.

Permian Rising

West Texas Intermediate crude for April delivery fell $1.71 to settle at $48.29 a barrel on the New York Mercantile Exchange.

Output from the Eagle Ford in Texas, the second-largest oil field in the U.S., is expected to drop by 10,000 barrels a day. Production in the Bakken region in North Dakota is expected to decline by 8,000. It’s the first month both regions are forecast to have shrinking production since January 2009.

Production in the Permian Basin in West Texas and New Mexico, the largest U.S. oil field, will rise by 21,000 barrels a day to 1.98 million.

Refineries processed 15.1 million barrels of crude a day the week of Feb. 27. Last year, crude demand rose from 15 million barrels a day in the middle of March to 16.6 million in July. Refineries typically shut units for planned maintenance in the late winter and early spring to be able to run at full capacity during the summer driving season.

Inflection Point

The EIA’s oil-production estimates are based on the number of drilling rigs in different plays and calculations of how productive each piece of equipment is. The number of rigs drilling for oil fell to 922 on Friday, according to oilfield service company Baker Hughes Inc. Oil rigs in the U.S. peaked in October at 1,609.

There’s a lag of a few months between rig activity and new wells coming online to add oil supply, said Jozef Lieskovsky, an EIA senior analyst. The sharp declines in rigs are just beginning to be felt.

“This is the inflection point,” Lieskovsky said by phone from Washington D.C. today. “We had great momentum building up production, but that driving force left and now we’re reversing.”

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