U.S. Oil Production Growth’s Path Is Clear
How much will U.S. oil production grow this year—this is the question on a lot of minds, both in the United States itself, and across the world.
The U.S. shale oil patch was a major player in the global oil market’s development a decade ago. However, it isn’t growing as fast as it once was. U.S. Shale drillers are now being cautious for the first times since the shale boom.
The forecasts for U.S. oil production were also cautious when analysts realized that shale producers have no plans to return the growth-at-all costs mode. Except for those that come from the EIA.
The Energy Information Administration has released its most recent Short-Term Energy Outlook. forecast The United States’ oil production will increase from 11.86 million barrels per day last year to 12.4million barrels per day this year. The EIA stated that it will rise to 12.81million barrels per day in 2024.
The EIA projects that oil prices will fall over the two-year period. This is perhaps even more fascinating than the growth projection. The EIA expects U.S.-based shale drillers will increase production in the face of declining prices.
This is the world of forecasts. In the real world, U.S. producers are seeing production growth of around 1 million bpd despite forecasts. added Just 620,000 bpd was added to the total national production figure for last year. In addition, production growth was slower towards the end. The industry predicts that it will slow even further this year.
“Most companies are drilling tier 2 and tier 3 inventories now,” Scott Sheffield, chief executive of Pioneer Natural Resources, told Reuters at 2022. “Less quality production comes out of Permian, and out of Bakken.”
The Dallas Fed latest energy survey revealed Although many oil companies plan to increase their spending in the coming year, it will not be a large increase for most. Survey results also indicated that there is optimism in the industry as costs inflation slows down. However, the survey also indicated that there was still uncertainty about what the future holds, which is not conducive for strong production growth.
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Furthermore, it appears that the oil sector likes its more cautious approach to money management. And a lot of shale drillers that had been in the red for years are now paying down debt—instead of spending money on production growth.
The Wall Street Journal reported The ten largest U.S. Shale Independents reduced their collective debt by 17 percent between mid-1999 and mid-2022. This brought the total to $84 Billion. Occidental Petroleum cut its debt load half off and Marathon Oil Corp reduced it by just over a quarter in the same time period.
The EIA predicts that the U.S. will produce 550,000 barrels of oil per day this year. It would increase between 300,000 to 400,000 barrels per day, according to Pioneer’s Sheffield. Some analysts predict even greater growth than the EIA and others expect it will be less than Sheffield’s.
The mystery may remain, but this is only true if one adheres to official government forecasts. These are supposed be based on input from the industry. The mystery vanishes if one just follows what the industry says. Because the industry has been saying since a long time now that production growth is not priority, even though oil demand is expected to rise.
According to the EIA and OPEC, oil demand is expected to rise this year and next. In response, the EIA expects both non-OPEC and OPEC producers to contribute by boosting their production—an assumption that is questionable in OPEC’s case. If the price at which the oil market is being balanced would be too high, then the cartel has made it clear that they are not in a rush to do so.
Meanwhile, production in the United States almost reached 12.4 million bpd at the end of last year—the forecast average for 2023. At the end of December last year, the EIA reported that October’s actual oil production was 12.38 million barrels per day. This is an increase from 12.31 million barrels per day a month earlier. According to the STEO forecast, U.S. producers may maintain their current production levels until October 2022.
It could turn out this way too. U.S. oil producers have been sensitive to shareholder sentiments for the past two years and have prioritised them over production growth. Their shareholders also indicated they prefer to receive cash returns than reports on record production.
The climate change and emission reduction narrative does not encourage more investment in new production. It encourages emission-reduction pledges, Scope 1, 2, 3, and 3 reduction plans, which are incompatible with production growth. This means that U.S. crude oil producers are probably planning for another cautious year with moderate production growth.
By Irina Slav for Oilprice.com
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