Monday, November 29, 2021

Where is US oil production headed from here?

In 2018, the United States overtook Saudi Arabia, becoming the largest oil producer over the world. In late February 2020, US domestic oil production reached a staggering number of about 13 million barrels per day. And then, the pandemic came, first, the demand slumped, then the oil price war between Saudi Arabia and Russia crashes the oil market to negative oil prices.

In April 2020, US oil producers shut in over 2 million barrels of oil per day. Then, due to development of vaccine and restriction removed from lockdown worldwide, oil production in US rebounded from 10.5 million barrels/day in August 2020 to 11 million barrels/ day in January 2021.  In August 2021, domestic production rose to 11.4 million barrels/day, but recently fell to 11.1 million barrels/day due to shut down in Gulf of Mexico production from hurricane Ida.

According to recent EIA Drilling Report in September, forecasts have shown a slight increase of 66,000 barrels/day in October compared to September, of which 53,000 barrels/day from the Permian Basin and 13,000 barrels/day from rest of 7 oil basins. When looking at production levels, it is important to note while rig counts have steadily climbed comparing to last year, new-well oil production per rig have declined across all 7 oil basins in Permian, Niobrara, Eagle Ford, Bakken, Anadarko, Appalachia, and Haynesville Basins. And most production growths from last year in onshore production in the US have come from the Permian Basin.

Due to government policies and maintenance issues, Alaska and California continue to see oil production decline. This downward will likely continue in 2022. In the Gulf of Mexico, oil production has slowly climbed back, although damages from Royal Dutch Shell’s WD-143 facilities signals that 14% of oil production in the Gulf of Mexico will remain shut for the end of the year.

Heading into this winter, it is unlikely there will be any upside change to the US domestic oil production, possibly remaining around the level of 11.1 to 11.2 million b/d. While production is likely to rebound in 2022, the change maybe more moderate as the first half of this year due to potential extreme weather events like the Texas snow storm happened in February this year which sends shock into the existing global supply chain crisis.

In the meantime, investor sentiment has changed in the oil shale industry in post-pandemic era. With increasing of drilling costs as well as progressive policies from the new US administration, the long term growth of US oil production remains to be a question.

Jiayang Shao
I am a political and financial news writer who focus on global events. One of my biggest interests is to look at how government policy, geopolitics, macroeconomics, and supply, demand influence the oil market. During my spare time, I trade energy equity and crude oil futures.

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