EIA: US production continues to drop
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Brent down $3 in July, first monthly decrease since January, driven by British vote to exit EU, Canadian supply disruptions easing
KRISTEN NELSON Petroleum News
The U.S. Energy Information Administration expects U.S. crude oil production to decrease from an average of 9.4 million barrels per day in 2015 to 8.7 million bpd this year and to 8.3 million bpd in 2017.
EIA said in its Aug. 9 Short-Term Energy Outlook that the forecast reflects declining production onshore in the Lower 48 partly offset by growing production in the federal Gulf of Mexico.
The agency said it estimates that total U.S. crude oil production has fallen by 1.1 million bpd since April 2015 to a July average of 8.6 million bpd.
“Based on the current oil price forecast, EIA expects oil production to continue declining in most Lower 48 onshore oil production regions through mid-2017,” the agency said, with expectations of lower cash flow this year and next prompting many companies to scale back investment programs and to defer major new undertakings until there is a sustained price recovery. EIA said it expects that the prospect of tighter lending conditions is likely to limit availability of capital to many smaller producers, “giving rise to distressed asset sales and consolidation of acreage holdings by firms that are more financially sound.” Lower onshore investment is expected to reduce oil-directed drilling and well completions this year and next.
Growing US production “After a steep drop over the past year in U.S. production, a recent uptick in the number of rigs drilling for oil is expected to contribute to more steady monthly oil output starting this fall,” EIA Administrator Adam Sieminski said in a statement on the agency’s energy outlook.
“Domestic monthly oil production is expected to begin consistently rising in late 2017 due in part to higher forecast oil prices and improvements in drilling productivity,” he said.
The immediate forecast is for U.S. crude oil production to continue to decline, from an average of 9.2 million bpd in the first quarter of this year to an average of 8.2 million bpd in the third quarter of 2017. EIA said 8.2 million bpd would be 1.5 million bpd below the April 2015 level, the highest monthly production since April 1971.
The most rapid production decline is expected from this April through September, with a drop of some 150,000 bpd each month expected. EIA said it expects production to be relatively flat from October through next July, averaging 8.4 million bpd.
After hurricane-related outages expected in the third quarter, dropping production to some 8.2 million bpd, production is then expected to rise, with late 2017 increases reflecting “productivity improvements, lower breakeven costs, and forecast oil price increases.”
Brent averages $45 North Sea Brent crude oil spot prices averaged $45 per barrel in July, down $3 from June, the first monthly decrease since Brent fell to a 12-year low of $31 per barrel in January, EIA said.
Brent is forecast to average $42 per barrel this year and $52 per barrel in 2017, while West Texas Intermediate prices are forecast to be slightly less than Brent this year and the same in 2017.
EIA said significant global oil supply outages contributed to rising crude prices in the second quarter of the year, but “concerns about future economic growth related to the United Kingdom’s June 23 vote to exit the European Union and the easing of supply disruptions in Canada contributed to falling oil prices in late June.”
High levels of U.S. production and global petroleum product inventories contributed to falling prices in July “despite relatively strong demand, and because of growing U.S. oil rig counts,” the agency said.
The Baker Hughes U.S. active oil rig count increased for six consecutive weeks in July and August, EIA said, “the longest stretch of weekly increases in almost a year.”
Global oil inventory builds are expected to limit upward price pressure in the coming months, with Brent forecast to average $43 per barrel in the second half of the year.
EIA said it expects “consistent global oil inventory draws to begin in mid-2017,” with Brent averaging $52 per barrel in 2017, based on a forecast average of $58 per barrel in the fourth quarter of 2017.
Natural gas The Henry Hub natural gas spot price averaged $2.82 per million British thermal units in July, up 24 cents from June, with the price increase reflecting “warmer-than-normal temperatures in July, which led to increased demand from the electric power sector,” EIA said.
The agency said it expects natural gas prices to rise gradually, averaging $2.41 per million Btu this year and $2.95 in 2017.
Natural gas marketed production in May averaged 78.1 billion cubic feet per day, down 2 bcf from record-high daily average production in February 2016. EIA said it expects production to increase in late 2016 and through 2017 in response to forecast price increases and increases in liquefied natural gas exports, which are expected to average 0.5 bcf per day in 2016 with the start of Cheniere’s Sabine Pass liquefaction plant in Louisiana, which sent out its first cargo in February.
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