Despite the recent price drop, US production will continue to grow at a swift pace through 1H 15 and those additional barrels will need to find a home in the North American market due to export restrictions. US tight oil producers will likely take a long-term view with regards to their capex decisions, according to Barclays.

As a result, lower oil prices are unlikely to have an immediate impact on production growth. From September levels, Barclays forecast shows production growth of over 400 kb/d by the end of March and close to 900 kb/d by the end of 2015. Even opportunities to export to Canada or to export ANS internationally have limited upside from current levels.

Crude prices have fallen by over $20, but neither production, nor demand, will respond overnight. In the US, production will continue to grow at a fast clip, particularly in PADD 3 (US Gulf Coast). Here, domestic crudes have already displaced a majority of similar quality light imports, but regional production continues to grow, and new flows from the Mid- Continent are expected as several new southbound pipelines ramp up.

The opportunities to clear this growing supply of domestic crude are limited. Refinery runs at the Gulf Coast and the Mid-Continent have limited upward potential, exports to Canada are near their limits, and growth in processed condensate exports is limited due to holdups at the Commerce Department."

As domestic crude begins to mount at the Gulf Coast, we expect sellers to discount their barrels to ensure that they get shipped, processed or stored, which should help drive Brent-WTI wider, particularly during the 1H 15 timeframe," the report said.
Source: Barclays