Investors looking for a bullish case for oil will probably be pleased to hear that the downtrend in U.S. oil production is accelerating.
A new forecast in the?U.S. Energy Information Administration calls for crude oil production from new wells to dip to 263,000 barrels per day (bpd) in June – the lowest level in two years.
Stfane Marion, chief economist and strategist at National Bank Financial, noted the impact from lower well production is magnified through the persistent rise in depletion rates for existing wells, that are currently at a record 349,000 bpd.
That’s a primary reason the EIA anticipates U.S. crude oil production will decline by 86,000 bpd in June, which may be the largest reduction since 2007.
Some energy investors can always be concerned about the production stickiness associated with the inventory of drilled but uncompleted wells, but National Bank’s energy analysts don’t think the backlog is big enough to avoid further production declines.
“Our colleagues estimate that even if the pullback in rig counts ended up being to reverse today and move higher as soon as it dropped, U.S. crude oil output would still likely decline with the rest of the year,” Marion said in a research note.