US Production

It is a good thing the US is sitting on a half billion barrels of stored oil, because they are soon to be in a lot of trouble. Production is down this year, by almost a million barrels per day. But that is just the start. To understand why, all you need to do is look at rig counts. In 2014 the US had over 1600 operational rigs. Today, less than 350. A massive drop. The thing with rigs is that they produce on a curve. Production ramps up, peaks, then declines. When the US was producing over nine million barrels per day last year, it was because a lot of rigs were peaking at once. This year the decline is starting. The thing is for the past year, no new rigs have come online. There is no new production to offset the decline. And it's a double whammy of rigs aging and coming offline. This points not to a gentle decline, but an incredibly steep one. One that we are just seeing the start of. I can see the US producing less than six million BPD by the end of the year. When that happens the price will surge to over $80 per barrel. That will be enough to get a lot of new rigs pumping, but not enough of them or fast enough. Even if there was a massive surge in new projects and rig counts doubled, that still leaves the US with just 700. A far cry from the 1600 they had two years ago.