Yet even more evidence that the oil price slump will be prolonged

 The new EIA projections show that even with falling rig counts, production will stay high. They have a great chart attached:

It is hard to see, but the new wells have very high depletion rates. Consider the dark brown band: wells that will be drilled in the first quarter of this year. Their production is estimated to fall by 54% in their first year and then another 38% in their second, for a total two-year decline of 71%. Yet production is still expected to rise, because we are getting much better at drilling: initial production is going up. Consider the Bakken in North Dakota:

Or the Eagle Ford in South Texas:

Or my favorite, the Permian in West Texas:

Of course, rig counts could go lower. How low would they need to go? Well, once again the indispensable bureaucrats at the EIA have done the work:

In other words, we have a long way to go before American production starts to fall. You heard it here.

And let me say that if I know this, then the very good technical people at Saudi Aramco also know this! Saudi oil strategy is not about trying to kill American unconventional production, no matter how much they head fake. It is, as we said here, about trying to kill substitutes for oil, including conservation.

And I am gratified to see that story make the front page of the Washington Post today!

Comments

[shah8]

I found this pretty thought-provoking. In general, I have been thinking pretty hard about what the low oil prices meant, and reading Isabella Kaminska's efforts on this topic as well. I have also been trying to understand what's going on in Nigeria and Angola as well, though I think that's a lost cause. Going back to this post, I've googled some, and found lots of investment sites talkin 'bout some contango with the eye towards $80 in 2018. I do not have any sort of grip on the mechanics, so I really appreciate some of this "ground floor" element to your blogging. Concur that while investment may slow, the sentiments that the people at alphaville have been pushing about the easy deployability of capital toward fracking makes said immediate slowed investment not as important.

Right now, I think that the ultimate problem with oil demand relate to political questions of what is "investible". I think that overall market size is what matters to Saudi policy inclinations, and to echo, I suspect that "conservation" is probably the key enemy here. The Saudis do not want to overprice any big investment project that depends on lots of oil to build or run.