How did that prediction work out, Nostradamus?

They say never make predictions, especially about the future; and by "they" I mean just about everyone, the quote is variously attributed to Yogi Berra, Albert Einstein and Dan Qualye, amongst others.

Foolishly I ignored that advice and I did make a prediction, but I did have a little edge, I paid attention to that other quote about learning from history. At the beginning of February I wrote an article predicting that oil production growth in six American states would stall in the summer, the six states I had settled on were the ones which have been behind the amazing climb in US oil production, Texas, North Dakota, Oklahoma, New Mexico, Utah and Colorado.

Portrait of Michel de Nostredame (Nostradamus), a French Renaissance Medicine & Astrologer, painted by his son César de Nostredame


Portrait of Michel de Nostredame (Nostradamus), a French Renaissance Medicine & Astrologer, painted by his son César de Nostredame

Well, it isn't the summer yet, but it is April, and one of the things I also said in that article was that I reckoned the number of rigs working in those six states would have fallen to 700 by April. I just counted them up in the Baker Hughes rig count published on 20th April, the tally of rigs working in those states was as follows: Texas – 411, North Dakota – 83; Oklahoma – 118; New Mexico – 49; Utah – 7; Colorado – 36. That's a total of 704, so I claim some success with that prediction. Not quite good enough to ask Nostradamus to vacate the premises but a decent start.

But the only reason to make that prediction was to try to project what would happen to oil production. Sadly the data on a state by state basis is only released by the EIA on a monthly basis, and the latest data release only runs to January 2015. Still that is a couple more months worth of data than when I made the prediction; at first glance it looks like I was a bit slow in saying it would take to the summer for oil production in those six states to start to fall, the January production figure of 5.743 mmbbls/day is some 38,000 bbls/day down on December. However, when you look at the weekly data and the monthly actual and forecast data, which is only available for US oil production as a whole, you can see that January was a head fake, and that the February and March figures will probably be ahead of January by a couple of hundred thousand barrels per day.

The teenage scribblers on Wall Street will have a field day with that news when it comes out, doubtless bragging about the resilience of the US shale industry and predicting doom and gloom for oil prices. But it will be no surprise and it tells us nothing we don't already know – it takes months and months for the impact of slashed capital expenditures to be felt. 

Total US (left hand axis) and Six States (right hand axis) Oil production, all data EIA

Total US (left hand axis) and Six States (right hand axis) Oil production, all data EIA

But, look closely at the yellow line and you can see that there is a hint that supply growth is just beginning to stall. I am now pretty certain that by the height of summer we will be getting data that confirms that US production has started a decline. How steep that decline will be I don't honestly believe anyone knows. The EIA project a pretty gentle decline (the blue line), but shale production has a different character to any conventional reservoir and I suspect that we might close out 2015 with overall US production below, rather than above, 9 mmbbls per day.

We can check in again on that prediction in early 2016.