Total liquids production rose by 0.36 mb/d m/m in March to 15.80 mb/d, higher y/y by 1.89 mb/d (with NGLs up by 0.53 mb/d). US crude output rose by 0.21 mb/d m/m in March to 10.47 mb/d, higher by 1.33 mb/d y/y. We had forecast 0.21 mb/d of m/m growth. The growth was driven by Texas and New Mexico (a proxy for the Permian and Eagle Ford). Supply in this region rose by 0.2 mb/d m/m to 4.8 mb/d (up by 1.0 mb/d y/y). This is in line with an increase of 15 rigs and 41 more completions in the Permian alongside three more rigs and four more completions in the Eagle Ford in March. But we expect Permian output to begin coming up against takeaway bottlenecks over the next few months, with a crunch-point occurring in August, when there may be insufficient infrastructure to deal with production growth (either through storage or pipeline takeaway to refining and export markets). For this reason, our exit rate growth in the Permian of 0.53 mb/d between December 2017 and December 2018 remains below consensus.
Production in Oklahoma and Kansas (a proxy for the Anadarko basin) grew by 16 thousand b/d m/m to average 0.64 mb/d (higher by 93 thousand b/d y/y). Output in the region has risen by 43 thousand b/d so far this year, outstripping our expectations of around 15 thousand b/d of growth over the period. Much of this oil will be delivered directly to Cushing, meaning that while the volumes are small they are of magnified importance to benchmark WTI crude prices—this goes some way in explaining why Cushing stocks have failed to draw by as much as some have been expecting. Production in Wyoming and Colorado (a proxy for the Niobrara) increased by 12 thousand b/d m/m to 0.67 mb/d (higher by a huge 0.16 mb/d y/y). This offset a 4 thousand b/d m/m decline in the Bakken. We expect Rockies output to surge this year, as it is one of the few basins with adequate takeaway capacity and a tight basis differential. Furthermore, producers there such as Anadarko, PDC and Devon have guided towards much higher Capex y/y in the region. One sour point in this month’s data was the Gulf of Mexico (GoM), where output fell by 19 thousand b/d m/m to 1.7 mb/d, down by 70 thousand b/d y/y, driven by lower output at Perdido. GoM production is likely to be sharply lower in Q2 18 with planned maintenance at Mars/Ursa and Mad Dog reducing output by as much as 0.15 mb/d.
With WTI/Brent widening to -$10.50 per barrel, deferred WTI-Midland differentials selling off to -$18 per barrel and the futures curve backwardated, WTI-Midland prices in December 2018 are languishing at just $48 per barrel compared to a Brent price of $78 per barrel. This may begin to affect drilling plans as Permian producers aim to moderate cash burn and appease investors this year. Separately, even the Bakken may face wet gas processing capacity constraints that could slow oil completions for the smaller producers towards year-end.