There is abundant speculation about how much further oil prices might fall and when US oil production growth will begin to decline. The consensus among analysts and investors is that oil prices are likely to reverse course and start trending upward sometime later this year or next.

With US land-based rig counts trending down over the past few weeks and many US producers announcing capital expenditure cuts, incremental US oil output looks set to decrease. The question is when.

It is not easy to formulate a clear estimate because the correlation between rig count and production volume has weakened in recent years as US shale operators gained efficiencies by drilling multiple wells from single pads, drilling longer laterals with more frack stages, reducing drilling time per well and many other innovations learned from drilling the thousands of wells that underpin the current production boom. To be sure, many US producers are cutting spending while increasing oil production growth estimates for this year by double-digit percentages.

Part of the reason for that is sunk costs, already drilled wells awaiting completion, wells awaiting pipeline connectivity and similar factors. But once this latent production comes on stream – assuming oil prices have yet to rebound – US oil production volumes will likely decline.

Another important wild card is corporate hedging strategy that muddies the ability to pinpoint when oil production volumes might slacken.

Powerful market participants including the Saudis are watching this closely. Saudi oil minister Ali al Naimi sat down for an interview with Middle East Economic Survey just before the New Year in which he provided fairly detailed answers to numerous oil market-related questions.

Al Naimi stated he was confident oil prices would again increase because international oil companies had cut future capital expenditure which would eventually decrease their output and thus global supply.

“International oil companies have reduced their future capital expenditures, which means there is no exploration. Existing facilities will continue to produce. But the fact that they have reduced capital expenditures means that in the future, they will not have additional production.” – Saudi oil minister Ali al Naimi as reported by MEES

The interviewer then asked if that was a bet, to which Al Naimi replied it was not because corporate budgets had already been declared. And regarding general oil price trajectory, he said:

“The bet is about the timing of the price rise, not about if it will occur.”

However, Al Naimi then admitted “the timing [of an oil price increase] is difficult to know.”

Well thanks for that!