Opinion: Rising US oil production knocks OPEC off course

 

US oil production up to 9.031 million b/d in February

By John Kemp

LONDON, May 2 – US oil production is surging, complicating OPEC’s efforts to rebalance the oil market.

US production rose by more than 450,000 barrels per day (b/d) in the five months ending in February, according to the U.S. Energy Information Administration (EIA).

Total US crude production has increased from a recent low of 8.567 million b/d in September to 9.031 million b/d in February (“Petroleum Supply Monthly”, EIA, April 28).

Production continued rising in March and April, and now stands at over 9.2 million b/d, according to weekly estimates published by the agency (“Weekly Petroleum Status Report”, EIA, April 26).

Weekly estimates are considered less reliable than the monthly numbers, but the two series have tended to follow one another closely, so there is no reason to doubt the continued growth in output.

US crude production is increasing at an annual rate of more than 1 million b/d, comparable to the boom of 2012-2014.

The rapid recovery in U.S. output is one of the factors making market rebalancing slower than OPEC anticipated.

Most of the increase so far has come from non-shale producers in the Gulf of Mexico and Alaska. But the massive increase in the number of rigs drilling onshore should ensure shale output rises substantially in the remainder of 2017.

Gulf of Mexico output rose by 228,000 b/d in the five months to February, while onshore production from the lower 48 states increased by 175,000 b/d and Alaska’s output rose 61,000 b/d.

From a cycle low in May 2016, the number of rigs drilling for oil in the United States has risen by 380 or around 120 per cent.

Exploration and production firms are still adding drilling rigs at an average of almost 10 per week, according to oilfield services company Baker Hughes.

Rig counts generally affect production with a lag of about six months so the full impact of all those extra rigs has yet to be reflected in the production statistics.

Crude output is already rising much faster than predicted by any of the major statistical agencies at the start of the year.

EIA has already raised its year-end forecast from 9.22 million b/d in January to 9.64 million b/d in April (“Short-Term Energy Outlook”, EIA, Jan and Apr 2017).

By the end of the year, production is predicted to have fully recovered from the slump and to surpass the previous peak set in April 2015.

Production forecasts are very likely to be revised even higher given the speed with which output has increased in the first four months of the year.

Some of the rise in production is the result of offshore output, but onshore shale production is forecast to exceed its previous peak well before the end of 2018.

Editing by Susan Thomas

John Kemp is a Reuters market analyst. The views expressed are his own.