World field production of crude oil increased 2.9 million barrels a day in the 12 months ended last July. That compares with a 3.6 mb/d increase over the entire nine years from Jan 2005 to Dec 2013.





The biggest single factor is Iraq, where production is up almost 1.1 mb/d over the last year. Although ISIS has managed to bring cruelty to much of the rest of the world, so far they have not disrupted Iraqi oil production.

The second biggest factor in the 2.9 mb/d gain was the United States, where production increased 0.6 mb/d July 2014 to July 2015, thanks to the tremendous success of shale oil, or production based on horizontal fracturing of tight geologic formations.

But that is going to change. The EIA Drilling Productivity Report tabulates detailed summaries of drilling and production in the main U.S. counties that have been responsible for the shale oil revolution. One of the interesting statistics is their calculation of the change in “legacy” production. To get this, the EIA tabulates production in these counties coming from wells that had been in operation for two months or more as of August, and then looks at how much was being produced by these same wells in September. This calculation comes out to be a drop in production of those legacy wells of some 330,000 barrels per day between August and September. The EIA series for the change in legacy production each month is plotted below. If we were relying only on historical wells without drilling new ones, U.S. shale production would fall about a million barrels/day every three months.

Drilling hasn’t stopped but it has been cut back significantly.

Production has not fallen as dramatically as many of us has anticipated thanks to remarkable ongoing gains in productivity. Even so, the EIA estimates that U.S. shale oil production will be half a million barrels a day lower in December than it had been in June.

And it will fall further. The five biggest pure players among U.S. shale oil producers could be EOG Whiting , and Continental Resources . Between them, these companies may account for about a fifth of total U.S. shale oil production, and between them they have lost $25 billion so far in the first three quarters of 2015.

Eventually this adjustment will bring crude oil inventories back to more normal historical levels. But we’re not there yet.