So, we know US production keeps falling and now its seems the major offshore oil plays are due for a sharp production pullback also. I am of the opinion this is putting a floor on oil prices and part of the reason I chose to short the DTO. I am not saying oil prices rocket back to $100 from here. There is just as good a chance that they only creep marginally higher or stay the same. By shorting the DTO, I win in either of those scenarios (see reasoning here).

* Offshore oil output to drop by 1.5 mln bpd in 2016-Rystad

* Drilling upgrades fall 60 pct in first half of year

* Oil market could balance by mid-2016 – Rystad

* Graphic: link.reuters.com/xaz75w

By Ron Bousso

LONDON, Oct 13 (Reuters) – Global offshore oil production in ageing fields will fall by 10 percent next year as producers abandon field upgrades at the fastest rate in 30 years, in the first clear sign of output cuts outside the U.S. shale industry, exclusive data shows.

A drop in oil prices to half the level of a year ago has forced producers to slash spending and scrap mega projects that can take up to a decade to develop, but they are also taking less visible steps to cut investment in existing fields that will have an immediate impact on global supplies.

There have been few signs of how cost cuts of around $180 billion will impact near-term production until now. They could erode the glut that has forced down prices, and help balance global production and demand by the middle of next year or earlier, Oslo-based oil consultancy Rystad Energy said.

Data provided exclusively to Reuters by Rystad show a sharp decline in investment to upgrade mature offshore oil fields in order to arrest their natural decline, in what is known as infill drilling.(Graphic: link.reuters.com/xaz75w)

In three major offshore basins — the Gulf of Mexico, Southeast Asia and Brazil — infill drilling dropped by 60 percent between January and July this year compared with the same period last year, according to the Rystad Oil Market Trend Report, whose data is based on company data and regulatory filings.

The drop dramatically exceeds previous downturns in infill drilling going back to 1986, the data shows.

For example, according to the data, in the Gulf of Mexico, infill drilling on mature wells dropped from 149 wells between January and July 2014 to a total of 61 wells during the same period this year.

Based on this trend, Rystad Energy estimates that global offshore oil production in mature field will decline next year by 1.5 million barrels per day (bpd), or 10 percent, to 13.5 million bpd from 15 million bpd in 2015.

“I feel there is a real shift in the market,” Per Magnus Nysveen, Rystad Energy's head of analysis, said.

“Companies are cutting capex (capital expenditure) that is flexible. A lot of the capex for 2015 has been committed already to projects so they are cutting where they can and drilling in mature areas is the easiest.”

HARD CHOICES

French oil company Total has said it is reducing its production growth outlook for 2017 by 200,000 bpd, and has acknowledged that this is in part due to lower infill drilling

“This is a choice we are making,” Chief Executive Patrick Pouyanne said last month. “We allocate less capex to some mature fields because we don't have the quick payout at $50 (a barrel) we could have at $100 so there is an impact on the decline rate of these mature fields.”

Companies provide production figures in quarterly results, but they rarely report or comment on the precise breakdown of drilling activities.

While Rystad predicts a rebalancing of global production and demand by the middle of next year due to the drop in offshore output, it also cautions that the market will need longer to plough through hefty oil supplies placed in storage over the past year.

A drop in prices to around $50 a barrel because of the abundant supply and weak demand has led to a downgrade in supply forecasts from countries outside producer group OPEC, which last year dropped its policy of supporting prices by cutting output.

U.S. shale production has been particularly affected by the price drop, with drilling activity more than halving.

On Tuesday, the International Energy Agency (IEA) said output from non-OPEC countries is expected to contract by nearly 500,000 bpd, as drilling activity slows in the United States and companies elsewhere delay projects. “Non-OPEC supply growth is disappearing fast,” it said in a monthly report.

But it also said the global oil supply glut will persist through 2016 as demand growth slows from a five-year high and key members of Organization of the Petroleum Exporting Countries maintain near-record output.

Total global offshore crude oil production, which includes new fields, was 22 million bpd in 2015.