Permian Basin Production Seems to be Slowing

New reports indicate that oil and gas production in the Permian Basin in western Texas may level off more quickly than previously believed. New wells are showing a decline in production of 65-85 percent after the first year. This means to sustain production rates, new wells must constantly be put into operation.
The Permian Basin is the largest source for fracked oil and gas. It has provided much of the basis for the huge upsurge in oil and gas production in the United States. The rapid decline in the productivity of new wells indicates that the output may be leveling off or even contracting in the near future. In fact, the number of oil rigs is down by almost 15 percent since the start of 2019 and the number of gas rigs is down by almost 20 percent.
The reduction in the number of rigs and overall production levels means reduced demand for frac sand. With prices having already plummeted and producers complaining about a massive over-supply in the industry, there seems little hope for new sand frac producers looking to find a market.
This could change if the recent run-up in oil prices continues. The price of a barrel of oil rose from the mid-fifties a couple of months ago, to slightly over $60 a barrel at the end of the year. This rise is generally attributed to expectations of better growth following a partial truce in the U.S.-China trade war.
It is not clear if this truce will remain in place or that expectations of better growth might have been oversold. Either case could mean that oil prices will give up some of their recent gains. It is also not clear that even if oil prices stay near $60 a barrel it will have much impact on production levels in the Permian Basin and elsewhere in the United States. In any case, the demand for frac sand does not seem likely to increase much in the near term future.