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Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: U.S. Oil Supply Forecast: Shallower Trough in 2016, but 2018 Estimates Moving Lower
June 13, 2016

In our Stat from May 31, we addressed the question "When will drilling activity respond and how fast can the U.S. rig count improve?" The end result was that we lowered our U.S. rig count forecast by about 10% in both 2017 and 2018. The natural follow up question to a lower U.S. rig count is "with our lower rig count forecast, how much will U.S. oil supply growth change?" In this week's Stat, we will answer the rig impact question after tweaking our assumptions on 1) increasing well productivities; 2) changing drilling efficiencies; and 3) including some impact from Drilled but Uncompleted Wells (or DUCs). After adjusting our U.S. production by play model per the variables listed above, we now forecast that total U.S. liquids production (includes NGLs) will begin to ramp up slightly sooner (2 months) and bottom at a higher rate (~12 million bpd versus 11.6 million bpd) than our previous model. In 2017, we are lowering our average U.S. liquids growth slightly by ~30,000 bpd (from 290,000 bpd to 258,000 bpd). The larger drop in our U.S. oil supply forecast comes in 2018 as we are lowering our U.S. growth estimates by about 470,000 bpd (from 1.87 million bpd to 1.4 million bpd). Even though the lower drilling activity assumptions reduce our 2018 y/y estimated growth rate, it is important to note that our estimates are still far above "street" expectations and are close to 2014 growth levels despite 600 fewer estimated rigs. In next week's Stat, we will plug our updated oil supply growth outlook into our global oil supply/demand equation to see how recent global oil supply changes will impact the 2017/18 oil supply/demand balances.