We will not be publishing our review of US oil demand and trade for December 2018 today. The EIA reported that it was unable to obtain accurate import and export data due to the US government shutdown. The US Census Bureau is expected to release December trade data on 6 March and the EIA will release the full December data on 8 March. We will release the demand data report once the data is available. Similarly, our NGLs report will be published accordingly. Today's report reflects the crude production numbers only.
US crude production fell m/m by 57 thousand b/d in December 2018 to 11.85 mb/d, although production was up y/y by 1.8 mb/d with average 2018 output up by 1.6 mb/d y/y. The December figure was lower than our projected production increase of 77 thousand b/d m/m for the month. The fall was driven by Gulf of Mexico (GoM) coming in lower by 0.13 mb/d m/m after a November surge in output by 0.19 mb/d m/m. While maintenance was expected at the Auger platform, this accounts for less than half of the drop. New Mexico and Texas production output was in line with our forecast of a 46 thousand b/d increase m/m as New Mexico and Texas production came in 48 thousand b/d higher m/m, the slowest growth since May 2018. North Dakota production also came in lower than the NDIC figure at just 18 thousand b/d m/m growth. Colorado and Wyoming production (a proxy for the Niobrara) rose by just 11 thousand b/d m/m to 0.78 mb/d, concentrated in Wyoming. Only 2 thousand b/d of m/m growth came from Colorado, when over the past two months Colorado had actually outperformed Wyoming. Production in Oklahoma and Kansas (a proxy for the Anadarko basin) rose by 4 thousand b/d m/m to average 0.68 mb/d (higher by 79 thousand b/d y/y) with Kansas production coming in slightly lower in December. Other states also fell m/m by a total of 13 thousand b/d.
The overall theme across Q4 18 earnings calls so far has been about staying within Capex figures, with many companies also lowering their 2019 Capex guidance. This is leading to several companies reporting lower or flat rig counts for 2019 and for some companies, such as Chesapeake and Parsley, even indicating that production growth will come later in the year. Still, production guidance is higher y/y across companies we follow (and who have reported so far), which could be driven by a drawdown in DUCs. DUCs in the Permian have been on the rise since September 2016 and have accelerated since April 2018 until recently. According to the EIA’s Drilling Productivity Report, overall DUC growth has decelerated the past three months, with even the Permian slowing down in December and January. Outright DUCs have fallen since May 2018 in the Bakken and Appalachia, consistent with some companies’ early depletion of Capex in 2018. We expect DUCs in the Permian to also start declining once the new pipelines start up, alleviating infrastructure bottlenecks. Across Q1 19, however, US production is likely to be marginally higher q/q at best versus Q4 18. Several companies have confirmed that budget exhaustion in Q4 18 resulted in frac holidays in December and hence lower production in Q1 19. Freeze-offs would also have tempered growth rates. Production is set to pick up in Q2 19, with service companies once again acting as a leading indicator. Activity is on the rise again, having come off sharply since November, and high frequency data such as frac spreads are showing a pick-up following a sharp fall through most of January.