"It's not like the supply reaction is instantaneous. It takes time to wind these things down," said John Kilduff of Again Capital. "I wouldn't expect a decrease in the rate of (production) growth until next year at the earliest."
The U.S. Energy Information Administration on Tuesday cut its forecast for daily U.S. production by another 100,000 barrels, to 9.3 million. That follows a reduction in its forecast of 100,000 barrels per day last month. The U.S. produced 9.08 million barrels a day in the week of Nov. 28 and has been producing over 9 million barrels a day for the past month.
The government's forecast for 2015 is now below some private analysts' assumptions that oil production can continue to grow at a higher rate of anywhere from 500,000 to more than 1 million barrels per day next year, depending on oil prices.
The EIA on Monday issued a new report on U.S. oil production showing the increase in production in the three main shale plays—Bakken, Permian and Eagle Ford—is growing by more than 100,000 barrels a day in December over November, and is expected to increase at about the same rate in January.
West Texas Intermediate was trading slightly above $63 per barrel Tuesday, after a steep selloff Monday, and Brent was trading at $66.07 per barrel.
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"It's (WTI) going to continue to slide on down to $60," said Andrew Lipow, president of Lipow Oil Associates. "There's just simply lots of oil out there, and all these lower prices make all these OPEC members want to produce their maximum rates to get more revenue. I think as Russia slides into recession, we're going to see them reduce their domestic consumption and put more on the world market."
Kilduff said production growth won't begin to slow until the second quarter at the earliest and prices could get very low, falling more with lower demand expected at the end of winter.
"Next year, we could see the low $50s (for WTI) in the late first quarter, second quarter time period., with the slack demand and the beginning of the supply response," he said.
Morgan Stanley this week put a target of $70 a barrel on Brent for next year. It also warned that Brent could sink in a worst-case scenario to $43 per barrel in the second quarter before recovering to only $48 in the third quarter.
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Kuwait said it sees oil at $65 a barrel for the next six to seven months, and Saudi Arabia has reportedly said it expects a floor of $60 per barrel in Brent.
Analysts say the lower oil prices go, the harder it will be to recover if producers keep pumping. But ultimately, they say it should stabilize and in two years, the world may well be somewhat short of oil due to the projects that are now being shut down and delayed.
The EIA data also showed a clear trend of efficiency and enhanced production in individual shale wells. For instance, the EIA showed new well oil production per rig in the Bakken is expected to rise to 550 barrels per day next year. "As recently as June, they were only producing 500 barrels a day," Kilduff said.
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Bakken rigs tell a similar story to other major shale plays. The industry is deploying technology to improve production, a key factor in the surprising rise in U.S. production. New well oil production in the Bakken was just 300 barrels a day in early 2013, according to EIA.