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May 2020 Markets & Analytics

Shut-In Production May Hit 17 MMbbl/d

LONDON–The second quarter of 2020 will see the largest volume of liquids production cuts, including shut-in production, in the history of the oil industry, IHS Markit says, adding it expects as much as 17 million barrels of total liquids output, including nearly 14 MMbbl of crude oil output, to be cut or shut-in by the end of June.


“The Great Shut-In, a rapid and brutal adjustment of global oil supply to a lower level of demand is under way,” notes Jim Burkhard, vice president and head of oil markets for IHS Markit. “All producing countries are subject to the same brutal market forces. Some will be impacted more than others. But there is nowhere to hide.”


The analysis expects oil demand in the second quarter of 2020 to be 22 MMbbl/d less than a year ago. IHS Markit says this collapse in demand combined with low oil prices, storage constraints and government-ordered cuts are driving what it terms an extraordinary level of liquids production cuts and shut-ins around the world.


North America and members of the Organization of Petroleum Exporting Countries, as well as nations in the Commonwealth of Independent States–particularly Russia–are expected to be the source of most production cuts, IHS Markit indicates. 


Exactly where, why and how supply cuts will take place is a complex matter, with no fixed equation, the analysis acknowledges. Oil is produced in a wide variety of environments, which means decision factors vary. However, IHS Markit says there are three key factors that shape production cut decisions:

  • Technical and logistical factors–including issues affecting restart complexity such as complexity and field maturity;
  • Financial considerations such as operating margins, oil price levels, future price expectations and the operator’s financial health; and
  • Regulatory and contractual conditions, including ensuring compliance with government requirements for shutting in wells, government orders to adjust production and contractual obligations.


IHS Markit points out that obligations to deliver associated gas are examples of contractual conditions that can impact production decisions. For upstream operations that are integrated with downstream assets, such as refineries or petrochemical facilities, downstream market conditions and needs of downstream assets could impact decisions about upstream output, especially when the assets are under combined ownership.


Exactly where, why and how supply cuts will take place is a complex matter, with no fixed equation, the analysis acknowledges. Oil is produced in a wide variety of environments, which means decision factors vary.



“When it comes to the where, why and how of production cuts, the wide range of technical, logistical, regulatory, contractual and financial conditions means there is no single set of answers,” argues Paul Markwell, vice president of global upstream oil and gas for IHS Markit. “But under these market conditions, it is pretty clear where production will be cut: nearly everywhere.” 

This story came from the print edition of The American Oil & Gas Reporter. For other great articles about exploration, drilling, completions and production, subscribe.