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Historic US shale oil output continues, but forecast growth slowing

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Historic US shale oil output continues, but forecast growth slowing

Highlights

Projected growth fell below 1% in six of last eight months

Slowdown caused by cost-cutting, low prices, lack of pipelines

Permian to account for 90% of shale growth as other basins dip

Washington — US shale oil output continues to shatter records, but the forecast for monthly production growth has shrunk by more than half over the past year, with five straight months of less than 1%, an analysis of US Energy Information Administration data shows.

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While overall US shale oil output is forecast to grow in September by nearly 17% year on year -- and more by than 44% from September 2017 -- the recent, relative declines in month-on-month forecast growth signals the explosive growth of US shale may be temporarily on hold.

The EIA on Monday forecast US shale oil output would climb to nearly 8.77 million b/d in September, an 85,000 b/d or 0.98% increase from August.

"In this relatively low crude price environment, producers have been trying to remain capital disciplined in 2019 by reducing overall costs and cutting back on rig activity through the first half of the year," said Matt Andre, an analyst at S&P Global Platts Analytics.

The EIA's production growth forecast for August slipped below 0.6% in July.

Monthly growth forecasts have fallen steadily since May last year, when it saw June 2018 growth of just over 2%.

Forecast monthly US shale growth has averaged below 0.8% for the past three months and has fallen below 1% in six months this year, according to an analysis of the EIA's Drilling Productivity Report data.

The EIA does not publish actual production data corresponding to the growth forecasts.

The recent slowdown in supply growth is caused by a lack of pipeline capacity, relatively low oil prices and a push by shale operators toward more free cash flow, according to Jamie Webster, senior director at Boston Consulting Group's Center for Energy Impact.

"I would say this is part of a maturing of the sector as it realizes it really does need to return cash back to investors rather than reinvesting in perpetuity," Webster said. "And as the bigger players take a larger share of production, this will accelerate."

While Platts Analytics still forecasts US shale oil to grow by 21% from 2018 to 2019 and then 17% from 2019 to 2020, quarter-on-quarter growth this year has so far been more modest. Shale oil output grew by only 1% from Q4 2018 to Q1 2019 and 4% from Q1 2019 to Q2 2019.

"Most of the producers are planning to back-load their growth in 2019, meaning the bulk of that will come in the second half of 2019," Andre said.

As much as 90% of that growth will be driven by the Permian Basin, as production plateaus or declines in other plays, Webster said.

"It is worth mentioning there are some basins struggling more than others," Webster said. "We are starting to see stalling efficiency gains in the Denver-Julesburg and Eagle Ford basins."

The EIA has forecast declining output from the Eagle Ford in the past four months of productivity reports.

Production in the Permian is forecast to grow 75,000 b/d from August to September, accounting for all but 10,000 b/d of total US shale oil growth over the period, the EIA said.

But forecast growth in the Permian also appears to be slowing, growing by an average of 1.1% over the first eight months of this year, compared with forecast growth of nearly 2.3% over the first eight months of 2018 and more than 2.9% over the first eight months of 2017.

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com