This page has been archived and commenting is disabled.
North America Crude Oil Production Remains Strong
Submitted by Erico Matias Tavares of Sinclair & Co.
North America Crude Oil Production Remains Strong
There are signs that crude oil production in the US remains strong, despite the strong correction in prices recently.
The American Association of Railroads (“AAR”) publishes rail traffic data for a variety of commodities in the US and Canada. The subset for petroleum and petroleum products can provide a sense of crude oil volumes being railed across North America (although it also includes refined products like gasoline, distillates, jet fuel and so on).
Here’s the latest monthly data for the US.
Monthly Average of Weekly Railcar Loads, Petroleum and Petroleum Products, US: Jan12 – Jan15 (in 000’s)
Monthly volumes up until last January remained strong, far higher than January of the prior year, although slightly below the high recorded last September.
Volumes in Canada were even stronger.
Monthly Average of Weekly Railcar Loads, Petroleum and Petroleum Products, Canada: Jan12 – Jan15 (in 000’s)
Last January was a record year in Canada. No signs of low oil prices impacting volumes there.
We also track the weekly data published by the AAR, which is more up to date. This is shown in the following graph.
Weekly Railcar Loads, Petroleum and Petroleum Products, USA: 2015 YTD (Green Line) versus Last 5 Year Range (in 000’s)
2014 is at the top of the previous 5-year range (grey cloud), given the strong growth in volumes since 2009. As we can see, 2015 (green line) remains near those highs, at one point even surpassing them.
But there’s an even faster way to gauge volumes being pumped out of the ground in North America, on a daily basis in fact: analyzing the Brent-WTI spread. The evolution of this spread since 2009 is shown in the following graph.
Daily WTI Crude Oil Prices (LHS) and 20d Average of Brent-WTI Spread (RHS): Jan 09-Present (US$/bbl)

Source: US Energy Information Administration.
As crude oil production in North America ramped up in earnest in early 2011 (once prices truly conquered the US$80/bbl level) the WTI discount to Brent, which reflects prices in the international market, exploded higher. There simply wasn’t enough mid-stream capacity (pipelines and railcars) to handle the growth in volumes. The resulting buildup of inventories all the way down to Cushing (a huge storage facility where WTI prices are marked) forced domestic producers to significantly discount their prices. As new midstream infrastructure was built or adapted to the new production reality, those bottlenecks started disappearing, along with the Brent premium.
As such, this spread can be used as an indicator of the robustness of domestic production over the near-term. If volumes remain strong the discount of WTI to Brent should increase accordingly (assuming no major changes in the supply chain). And that is exactly what the arrow in the graph above is showing in recent weeks.
So why would domestic producers continue to pump at these relatively low prices?
Many have some discretion in managing well / drilling costs, and to the extent that these can be reduced, the negative impact of lower prices on investment returns can be mitigated.
More importantly, many producers hedged their production going forward. Now, being a perennially bullish crowd, the industry has historically shown some hesitation in hedging more than a few years out. And there is evidence that this hedging period is not very long indeed.

Source: Oasis Petroleum Investor Presentation, December 2014.
The table above shows the hedging strategy of Oasis Petroleum, a major producer in the Bakken region, as of October 2014. As can be seen, the hedges for their production back then will come off substantially in the second half of this year.
We can certainly debate whether Oasis’ hedging policy is representative of the broader US tight oil industry, but we have seen evidence of this in our discussions with other players. If this is the case, producers should continue to have some price protection at least into the first half of 2015, affording them some staying power and the ability to maintain a decent portion of their original production plans.
And what has been the result of this so far?
Weekly US Ending Stocks (Excluding Strategic Petroleum Reserves): 1990 – Today (in 000’s bbls)

Source: US Energy Information Administration.
As shown in the graph above, a massive build-up of crude oil inventories in the US, to levels never seen in recent history. The International Energy Agency has even warned that the US will run out of storage soon [as Zero Hedge first noted a week ago].
It seems that at that point someone will have to finally stop pumping crude oil out of the ground.
- 14550 reads
- Printer-friendly version
- Send to friend
- advertisements -






Let's give that statement some numbers and context:
Yet US continues to import at least 7.3 million barrels a day. So does China (7.3 mbd). India imports about 3.9 million barrels a day. World oil production is between 92 and 93 million barrels a day - say, 92.5 million barrels a day
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRIMUS2&f=A
The US and China import because they're the #1 and #2 refiners in the world, respectively. Not everything that's imported into the US and China ends up being used in the US and China... just to add some context to your context...
US consumes about 19.5 million barrels a day and produces about 12 million barrels a day from all sources (actual oil production about 9.5 million barrels a day). So imports have to be about 7.5 million barrels a day. It is not as if the US is exporting millions of barrels of oil per day.
China is using about 10.7 million barrels a day and producing about 4 million barrels a day. So it needs about 6.7 million barrels a day of imports for domestic consumption.
The oil price decline is mainly due to economic warfare:
The Engineered Decline in Oil Prices: Economic Warfare is the West’s Main WeaponFor Russia, exports of oil and gas equate to 68 per cent of Russia’s total exports, and 50 per cent of its federal revenues
http://www.globalresearch.ca/the-engineered-decline-in-oil-prices-econom...
Considering the US peaked in the early 70s and the world peaked in about 2004
things are a mess
if oil was in abundance how come all the oil seems to live with bad guys wherever we aim our weapons
how come it makes skyscrapers defy gravity
weird that is
What, no pie chart?
The Perfect Storm means that big waves are in the making from all directions, it doesn't really matter that in the place it [the economy] now is everything is fine.
The good news is that Warren Buffett's railroad empire will give fire departments across the nation plenty of opportunities for real live practice putting out fires, dealing with derailments, and evacuating citizens who watch their homes burn to the ground because old Warren paid Obama a lot of money to block Keystone.
Admit it; you're just pissed he stole Ayn's idiotic idea.
I had a pie chart, but it got overrun by clowns
One year from now the current wells will start showing the rapid exhaustion typical for fracking sources, and production will decline abruptly. By then a lot of companies will be pretty fucked up, will minimal resources for new exploration. The whole industry will become another un-holly debt mess... just in time for elections ;)
Production has already started dropping in the Bakken field, down 34,619 bpd, while the rig count has dropped from 181 in December to 111 as of March 12, the lowest since April 2010. http://peakoilbarrel.com/eia-confusion/
While true, some of this reflects the type of refined products used in any country. You can change the output of the crack within reason, but you still get a full spectrum of molecules no matter what. You will always produce some gasoline and some diesel when you crack. The US uses a lot more gasoline than diesel and Europe uses a lot more diesel than gasoline. We swap diesel for gasoline with Europe. Of course, since we cannot export crude, but can export refined products, refining is an end run around the export ban too.
"The US and China import because they're the #1 and #2 refiners in the world"
And noone else wants to get in on that action because building frac'ing towers is hard? GTFO.
They're the number 1 and number 2 refiners in the world because drumroll... they have the highest demand for refined products in the world.
Most of the increased production is from the already drilled, but uncompleted wells that are decreasing in number as they are completed and not replaced by more drilling. The stock of uncompleted wells will be exhausted in the not too distant future, leading to radically decreased production as fracked wells enter their steep decline. Meanwhile, drilling companies are disappearing as prices are well below the break even point of fracked wells.
BTW, great irony with the pic of "bomb trains" that are exploding all over the North American continent. Funny stuff.
Makes one wonder about opportunity costs. Even if producers are producing at a loss, wouldn't their losses be greater if they were not producing at all? Thus: Oversupply.
Slow motion bankruptcy, is still bankruptcy.
A lot of the long term oil hedges start dropping off in April.
The counter partys have already been taking a bath, once those hedges have gone, look out
below.
It's interesting to see how this is happening. Oil is a magnificent example to show how the entire economic and banking system is predicated on continuous growth only. There is an automatic system in place for growth, but not for shrinkage. Oversupply into any market would normally result in lowering productivity of goods. If you can't sell all your widgets, you start to crank out less. It all works out OK if you are still profitable to pay your overhead and debt, or you have no debt. Here's the perfect trap going forward for most businesses: only up works. How can the oil system go backward evenly in an ordered fashion with so many suppliers to keep profits where they need to be at margins dictated by supply and demand? With constantly dropping consumption on this scale, even if all the producers worked together, the price/margin math would eventually still not work. This is exacerbated by the fact that there is so little leeway regarding how all this is financed (big time loans to the max!). It might be easier to do if no loans existed against the rigs, but that is the stick poking the bear for sure. At some point, rigs are going to have to be shut down. If they were owned outright with no financing, then only the rig owners are impacted. But the loans go way beyond the rigs, to the paper that everyone is holding and all the other crap the banks attach to it. We're about to get a lesson in going backwards, but it isn't going to be a fun one.
It's going to be a lesson about things to come... full speed ahead, then forced stop !
Yes. It's all about cash flow.
It it were textbook theory, they'd just quit, shut down. But this is reality. Debt service and payrolls need to be met, structure run or ruin. It's about cash flow. A lot of rigs can be idled, but production form others gets ramped up.
Over simplified, but gets the point across.
And probably ain't a gonna change at current prices. If we get to, just picking a number, say $20, then things get shuttered for good. Equipment old off, leases sold, etc.
I don't run a business, but surely you don't shutter your store and board up the windows because you made a loss here and there. That would be silly.
I'm not doubting oil producers are getting crushed and that most of them (especially those with weaker books) will either go out of business or suspend operations until the next boom. Of course that's going to happen, we're just betting on exact timing at this point.
The eternal optimism of human beings results in many dead horses getting
repeatedly flogged, and many businesses continuing trading long after insolvency is obvious.
"I don't run a business, but surely you don't shutter your store and board up the windows because you made a loss here and there. That would be silly."
Resource extraction is not like a typical business. You're leveraged to the gills on future output and earnings. Nearly all capital expense is upfront.
But this is Merka.
Here you bury the toxic waste with the old virtual citizen's corpse and issue fresh bonds when the next boom gets underway.
Can Canada's oil sands cope with $50 crude?, Mar 13, 2015 Financial Times https://www.youtube.com/watch?v=L_YFFL3o-vw
Looking at the Crashing BDI etc., I checked and found that global shipping accounts for only 4.5% of annual oil consumption. That is way lower than I thought and thus the shipping slump clearly does not impact demand THAT drastically.
Americans are still going high on the SUV hog. So there is that.
And all the ships (tankers etc.) that are not sailing are storing.
In short, this oil production constant to increasing and price plummeting looks good for a few months more. When global storage gets full, the bombs will start to fly and we'll see $150 oil in short order again.
Turn the other (ass) cheek...
https://aadivaahan.wordpress.com/2015/03/14/wisdom-for-rawriors/
And that 4.5% is the most unholy tar-laden crap you've ever seen...http://www.gizmag.com/shipping-pollution/11526/
"If you have to destroy me, you couldn't control me"
Wow Gmad, that is crazy....shocking....
moral of the story: short rails....and transports? when oil productions slows, trannies will crumble.
THE CHART IS USELESS.
iT NEEDS REBASING ON THE % DIFFERENCE NOT THE NOMINAL
Deflationary depressions present economic situations that are hard to understand out of context. Regardless of production levels (which are being financed with borrowed money), crude prices are a function of the deflationary vortex consuming every asset class today.
Falling crude prices should take a short break and correct somewhat in the near future, but the long-term picture remains down...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
Obvious outcome when the wells shut down were the non-producers. Just close the shitty ones and fire workers, capitalism at its finest.
Low oil prices are helping auto-related sector.....temporarily
Renault’s Russian Lada Division Takes Over Crimeas Auto Market
U.S. DOT Adds 4 Tire Codes For New Russian Tire Imports
Kia is Now Russia’s Best-selling Car
Ford Launches EcoSport In Russia For Production In Naberezhniye Chelny
Ford To Roll Out 6 New Models in Russia
you came with new account on zh ? tyler banned you earlier .
Those charts are all two and a half months old. Oil tanker rail traffic has slowed considerably since then.
80 degrees in North Dakota today.
That will break the record by 10 ten degrees.
Cold snap starting in two days. Crazy weather...
The recent wave of US oil production was heavily leveraged and this oil is on the margin. Oil producers are heavily in debt for the costs of production, thus they must produce full out to try and meet payment schedules to banks and investors. If they cease producing due to low prices, they immidiately face bankruptcy. The real fall out of low oil prices is not NOW, it is in the following months down the road when producing at a loss, and trying to meet interst payments catches up with high cost of production US oil producers. You gotta face the fact, Saudi oil comes out of the ground at a small fraction of the price of new US and Canadian sources. 1/10th the cost of Tar Sands mining.
it certainly does but the saudis have peaked and world demand is still growing. They can't keep this game up long. It's gonna get interesting
http://old.globalpublicmedia.com/transcripts/2851
Depletion allowance and deferred taxation should allow most of these leviathans to ride out their folly.
Counterpoint:
https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf
Of course oil production is strong.
US gov't figures show demand outstrips
production world wide by about 15Million bbls!
This is all about the US$
Specifically, the US$ is being repriced relative to DC "gold"
( what you and I call "oil" ) in response to the activation
of the SCO. A nice suckers rally in US$ is having all sorts
of follow on effects in the US$ denominated world. Even
makes oil look like a disaster.
Oh, and it makes the economies in the SCO look like
they are faultering or failing. Problem is, that with a
large chunk of the worlds economy running through the
SCO ( and by definition entirely outside the US$ financial
system ) we make a huge mistake assuming the
late great US$ based financial system actually indicates
anything real in the world economy...
Wonder if this is why our allies ( like the UK !!! ) are
looking at entry into the SCO...???
!!!