From our Mid-Atlantic energy analyst friend, today’s observation:
“The tussle for supremacy between OPEC and U.S. shale drillers is killing off older oil fields at the fastest pace in almost a quarter century. That could hurt the industry once the current glut has faded.”
We blend that into include other forces that are trending to curtail future crude oil production:
If one takes the cumulative increased decline of older assets together with the drying up of new annual new discovery additions (a subject for future note), plus the higher decline rates of shale wells, it is a virtual certainty that annual production volumes will come under severe pressure within a few years.
New discoveries have a lead time to optimum production levels of four to eight years, depending on location, logistics and whether they are additions to existing production. Thus, the drop-off in new production may not begin to manifest its effect until the turn of the next decade. But it will show up.
As we are fond of noting, trends tend to go from low to high (and back) in the energy industries in seven to ten year cycles. Having hit the latest low in 2016, we believe that factors being brought about by persistent low oil prices are already starting to operate that should produce another peak in the 2023-25 period, with prices having a bias to the upside in the interim.
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