How much will US oil production grow this year? This is the question on many minds, both in the United States itself and around the world.
After proving it could be a game changer for the global oil market a decade ago, the US shale patch is back in the spotlight, but this time because it’s not growing like it used to. Instead, US shale drillers are being cautious for the first time since the shale boom began.
US oil production forecasts, then, have also been largely cautious, as analysts saw that shale producers really have no plans to return to growth mode at all costs, no matter the price. of the oil. Except when they come from the EIA.
In its latest short-term energy outlook, the Energy Information Administration forecast that oil production in the United States will increase from 11.86 million barrels per day last year to 12.4 million barrels per day this year. It will also rise further to 12.81 million barrels a day in 2024, the EIA said.
What is perhaps more interesting than the growth projection itself is the fact that the EIA expects oil prices to decline over this two-year period. In other words, he expects US shale drillers to ramp up production amid falling prices.
This is in the world of forecasts. Meanwhile, in the world of reality, despite forecasts of production growth of about 1 million bpd this year, US producers aggregate only 620,000 bpd to the total domestic production figure last year. On top of that, production growth slowed towards the end of the year. And it’s going to slow down even more this year, according to the industry itself.
“Most companies are drilling level two and three inventories now,” Pioneer Natural Resources chief executive Scott Sheffield told Reuters in late 2022. “There’s less quality production coming out of the Permian, out of the Bakken.” .
The latest energy survey from the Dallas Fed revealed that although many oil companies plan to increase their spending this year, the increase will be moderate for most. The survey also suggested there was optimism in the industry as cost inflation eases a bit. At the same time, uncertainty about the future continues to reign, hardly conducive to strong output growth ambitions.
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Also, there are signs that the oil industry likes his new cautious approach to handling money. And many shale drillers who had been in the red for years are now paying down debt, rather than spending money on production growth.
The Wall Street Journal reported this week that between mid-2019 and mid-2022, the top ten independent US shale companies paid off 17 percent of their collective debt, reducing it to $84 billion. The best performers were Occidental Petroleum, which cut its debt load in half, and Marathon Oil Corp, which cut it by about a quarter during the period.
According to the EIA, US oil production will grow this year by 550,000 barrels per day. According to Pioneer’s Sheffield, it would add between 300,000 and 400,000 bpd. Some analysts expect growth even higher than the EIA, and some expect it to be less than Sheffield’s forecast.
One could say that the mystery remains, but that is only true if the official government forecasts are followed, although they are supposed to be based on information from the industry. If one follows what the industry itself says, the mystery disappears. Because what the industry has been saying for a while is that production growth is not a priority, even if the demand for oil is going to grow.
Oil demand, according to the EIA, as well as OPEC, is set to grow this year and next. In response, the EIA expects both OPEC and non-OPEC producers to contribute by increasing their production, an assumption that is questionable in OPEC’s case. The cartel has made it quite clear that it is in no rush to balance the oil market if that balance is achieved at a price that OPEC leaders feel is not high enough.
Meanwhile, production in the United States nearly reached 12.4 million bpd at the end of last year, the expected average for 2023. The EIA reported late last December that actual oil production for October of that year averaged 12.38 million barrels per day, up from 12.31 million barrels per day a month earlier. In other words, what the STEO forecast suggests is that US producers could maintain production around October 2022 levels throughout 2023.
In fact, it can turn out that way, too. In the last two years, US oil producers have become quite sensitive to the sentiments of their shareholders and have given them priority over production growth. And its shareholders have pointed out that they are happiest when they earn cash profits rather than reports of record production.
The climate change and emissions reduction narrative is also not encouraging further investment in new production. It is promoting emissions reduction commitments and Scope 1, 2 and 3 reduction plans that are, in essence, incompatible with production growth. What all this means is that US oil producers are probably bracing for another cautious year of subdued production growth.
By Irina Slav for Oilprice.com
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