US liquids output fell m/m by 46 thousand b/d to 17.55 mb/d in January, higher y/y by 2.6 mb/d. While NGLs output rose m/m, crude production fell m/m by 91 thousand b/d to 11.87 mb/d from an upwardly revised (+93 thousand b/d) December 2018 reading, but still rose y/y by 1.88 mb/d. The reported January m/m change was below our projected production increase of 0.12 mb/d m/m primarily due to historical adjustments—our final January forecast was only 28 thousand b/d higher than today’s report. Texas featured prominently, down by 1.3%, or 64 thousand b/d m/m to 4.8 mb/d, similar to last January when freeze-offs hindered production. This January was impacted by a combination of fewer frac crews deployed and some weather disruptions. Wyoming and Colorado production (a proxy for the Niobrara) also fell m/m by 14 thousand b/d to 0.76 mb/d, while Oklahoma and Kansas production (proxy for Anadarko basin) was lower by just 4 thousand b/d to 0.67 mb/d. The only basin to record a m/m production increase was the Bakken with North Dakota and Wyoming production higher by 8 thousand b/d to 1.44 mb/d.
We forecast US production likely fell m/m again in February, driven by freeze-offs in the Bakken and the Permian and scheduled maintenance on the Thunder Horse platform in the Gulf of Mexico. There is downside risk to our March estimates due to Midwest floods. Indeed, weather will be remembered as a recurring obstacle for 2019, not only because of freeze-offs which curtailed Pony Express flows due to lower Bakken output, but also because of forecasted record floods (which have already begun) ahead. The spring thaw and heavy rainfall with accompanying floods delayed rail and barge shipments across the Midwest over March and this is likely hindering production. BNSF and UP rail lines were damaged by washouts, while the Platte and Pony pipelines saw reduced throughput due to floods and cold weather. Gas processing capacity constraints continue to arrest growth in both the Bakken and the DJ Basin as well, although both regions expect significant capacity additions later this year.
We also suspect that early signs of parent-child well interference may already be impacting aggregate Permian production statistics. Our analysis indicates possible downside risks of 0.13 mb/d and 0.39 mb/d for 2019 and 2020 relative to our current Permian production forecasts. Meanwhile, concerns continue to mount regarding the crude quality of shale production. Midstream companies and pricing agencies have begun to segregate high API crudes primarily from the Delaware basin. Trade liquidity is growing for the new West Texas Light (WTL) grade. The primary growth streams over Q4 18 across Lower 48 production were those with an API greater than 45, a trend that has continued in January according to preliminary EIA data which show the percentage of crude output above 45 API rose to a record 24.2%.