Think the U.S. is awash in crude now? Thank the fracklog that it’s not worse.
Drillers in oil and gas fields from Texas to Pennsylvania have yet to turn on the spigots at 4,731 wells they’ve drilled, keeping 322,000 barrels a day underground, a Bloomberg Intelligence analysis shows. That’s almost as much as OPEC member Libya has been pumping this year.
The number of wells waiting to be hydraulically fractured, known as the fracklog, has tripled in the past year as companies delay work in order to avoid pumping more oil while prices are low. It’s kept crude off the market with storage tanks the fullest since 1930. The fracklog may slow a recovery as firms quickly finish wells at the first sign of higher prices.
“Once service costs come down and drillers begin to work through their higher-than-normal backlog, the market should start to price in that supply coming online,” Andrew Cosgrove, an energy analyst for Bloomberg Intelligence in Princeton, New Jersey, said by phone. “It may act as a cap on prices.”
Futures for U.S. benchmark West Texas Intermediate oil tumbled by more than $50 a barrel in second half of last year amid a worldwide glut of crude. They rose $1.58 to settle at $57.74 a barrel on the New York Mercantile Exchange.
Oil production in the lower 48 states would rise 322,000 barrels a day to an average 7.485 million in the fourth quarter of 2016 if drillers start shrinking their fracklogs by 125 wells a month in October, Bloomberg Intelligence models show. The forecast assumes horizontal oil rigs fall another 10 percent through the third quarter and prices are unchanged.