What the latest EIA report tells us about shale-oil output

Published: Nov 10, 2015 5:00 a.m. ET

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Will falling shale oil production lead to a reduction in crude-oil prices

By

MYRAP. SAEFONG

MARKETS/COMMODITIES REPORTER

 

U.S. Energy Information Administration

Key U.S. tight oil and shale gas regions.

Oil production from the Bakken and Eagle Ford shale plays in the U.S. has been falling since March, but traders shouldn’t be quick to assume that will translate into lower supplies and higher prices.

Total oil output from seven major U.S. shale regions is expected to fall by 118,000 barrels a day to about 4.95 million barrels a day in December, according to the Energy Information Administration’s monthly Drilling Productivity Report released Monday. The data show that production from the Bakken and Eagle Ford shale regions are both likely to show declines next month, which would mark 10 months in a row.

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“Bakken oil producers are still going after the low hanging fruit and leaving the high ones until prices go back up,” said Bob van der Valk, senior editor of th e Bakken Oil Business Journal

Indeed, analysts have been quick to attribute the declines to low oil prices, with West Texas Intermediate crude futures CLZ5, +1.37%  down more than 17% year to date—and some have said that once a trend of production declines forms, higher oil prices will follow.

“There is no evidence at current prices that rig drilling activity will recover any time this year, so we can expect ever lower production every month well into 2016,” said James Williams, energy economist at WTRG Ecomomics.

He expects December production in the shale plays to be down 550,000 barrels a day from the peak seen in April.

But a closer look shows that production from the Permian Basin, which is located in West Texas and southeastern New Mexico, is forecast to climb by 11,000 barrels a day to roughly 2.02 million barrels a day next month. Output from that shale play has been climbing all year.

U.S. Energy Information Administration

 

“Right now, the Permian looks like the most profitable play,” said Michael Lynch, president of Strategic Energy & Economic Research (SEER).

That is due in part to location, he said. The Eagle Ford shale play is in South Texas, but Bakken Shale is located in eastern Montana and Western North Dakota as well as parts of Canada.

“You have to bring workers from outside North Dakota and so salaries for everything, even hamburger flippers, is elevated,” Lynch said. “Much less so in Texas.”