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Warren Patterson, Commodities Strategist at ING, suggests that the US production growth has been quite amazing and according to the monthly production data from the Energy Information Administration, output over July averaged 10.96MMbbls/d- an increase of 1.7MMbbls/d YoY.

Key Quotes

“Production is expected to average 10.66MMbbls/d over 2018, and 11.5MMbbls/d over 2019. However it has not been plain sailing for the industry, with the rig count largely stagnant since the start of the summer, whilst weekly production estimates from the EIA have fallen short of actual production numbers highlighted by  monthly data for several months so far this year.”

“The key issue for the US industry continues to be takeaway capacity, specifically from the Permian region. Infrastructure has not been able to keep up with the pace of production growth, and this has been reflected in differentials- with Midland trading to almost an $18/bbl discount to WTI in early September. However more recently it has narrowed significantly to around a $7/bbl discount, driven by the expected startup of Plains All American’s 360Mbbls/d Sunrise pipeline by the 1  November.”

“The industry will then have to wait until the 2H19 for further capacity, with an additional 1.4MMbbls/d of pipeline capacity expected to start up, until then though we would expect to see further pressure on the Midland/WTI spread.”