US Oil Output May Stall in Late 2015 -IHS

U.S. oil production may stop growing in the second half of this year and could fall in 2016 as low oil prices make the majority of oil wells uneconomic, according to a report released on Tuesday by IHS Inc energy analysts.

 

Global oversupply of oil has knocked 60 percent off prices since June last year, forcing a slowdown in drilling and putting the brakes on a five-year boom that pushed U.S. production to record highs.

 

Production will likely grow in the next few months as oil producers honor contractual obligations and finish work on a backlog of wells that have already been drilled. But growth will halt in the second half of the year if oil prices remain below $60 a barrel, according to the IHS report based on a study of 39,000 oil wells.

 

U.S. oil is currently languishing around $50 a barrel, down from nearly $110 in June. While oil has rebounded slightly from below $45 last month, and many factors could boost oil prices fast, prices still remain depressed enough to slow activity.

 

The slowdown is largely driven by the economics of drilling. More than half U.S. oil wells drilled in 2014 were uneconomic below $60 a barrel, and 30 percent of new wells had break even prices of $81 or higher, according to IHS. About a quarter of new wells in 2014 had a break even price of $40 or less.

 

"If oil prices remain weak and confidence in future prices remains shaken, U.S. production in 2016 could possibly flatten or even decline," said Raoul LeBlanc, IHS Energy Senior Director of Financial Markets.