With US Shale, Libya, And Nigeria Ramping Productions, Should The Bulls Be Worried?

Summary

Readers have been concerned about potential ramp in production from US shale, Libya and Nigeria.
We discuss below the implications and possibilities of each ramping up production this year.
The bullish oil thesis remains unhinged.

Welcome to the worried edition of Oil Markets Daily!

Our inbox was filled with requests to update our thoughts on potentially higher than expected production coming out of US, Libya and Nigeria. The questions started flying when Libya's National Oil Company (NOC) announced that Libya's production is above 800k b/d and could reach 1.1 - 1.2 million b/d sometime this year. In addition, Nigeria's Forcados is returning and exports are expected to increase.

Let's address US shale first

In the latest EIA crude storage report, Lower 48 production rose again bringing overall US oil production to 9.314 million b/d.

The question on everyone's mind is just how fast can US shale grow this year?

Our current estimate pegs US crude production to average 9.45 million b/d this year. Second half of the year should see US shale production increasing to exit rate of about 9.7 to 9.8 million b/d. The pace of the increase is about 12k b/d per week.

The issue is that the current bottleneck we are seeing in the Permian (primary shale basin growth) will escalate towards the year end as storage capacity and takeaway capacity become strained. Even if US shale producers have access to capital and the ability to grow production aggressively, infrastructure support won't allow it to happen. In addition, there isn't enough frac crews to help service the Permian resulting in servicing cost pressure and other negative headwinds for producers in the region.

So how fast can US shale grow this year? We should see exit around 9.7 to 9.8 million b/d, and that's assuming infrastructure constraint. Any labor shortage along the way will see this figure reduced.

Libya

Is Libya really producing over 800k b/d?

Not likely, but 50k b/d here and there won't make that much of a difference in the global supply outlook. The question we should all be asking is if Libya can really increase production by an additional 400k b/d.