Providing coverage of Alaska and northern Canada's oil and gas industry
March 2018

Vol. 23, No.10 Week of March 11, 2018

US crude to average 10.7 million bpd

This year’s production average would be highest on record, topping 9.6 million bpd in 1970; EIA forecasts 11.3 million bpd in 2019

Kristen Nelson

Petroleum News

U.S. crude oil production is, as projected, at record levels and forecast to go even higher, the U.S. Energy Administration said March 6 in its Short-Term Energy Outlook.

“EIA estimates that U.S. crude oil production averaged 10.3 million barrels per day in February, up by 230,000 from the January level, which included some well freeze-offs in the Permian and Bakken,” Dr. Linda Capuano, EIA administrator, said in a statement accompanying the outlook.

She said EIA is reporting that for 2017, total U.S. crude oil production averaged 9.3 million barrels per day, “ending the year with production at 9.9 million in December.”

“EIA projects that U.S. crude oil production will average 10.7 million barrels per day in 2018, which would mark the highest annual average U.S. crude oil production level, surpassing the previous record of 9.6 million barrels per day set in 1970. EIA forecasts that 2019 crude oil production will average 11.3 million barrels per day,” Capuano said.

For 2018, “the forecast expects production to continue hitting new monthly highs - barring any significant energy disruptions. By the end of 2018, the short-term outlook is forecasting a new record average of 10.7 million barrels per day in U.S. crude oil production, and we continue to expect production to average above 11 million barrels per day in 2019,” Capuano said.

Brent down from January

EIA said North Sea Brent crude oil spot prices averaged $65 per barrel in February, down $4 per barrel from January, the first month-over-month drop since last June.

“EIA’s forecast expects prices to decline gradually, averaging $60 per barrel in the second half of the year,” Capuano said, with the annual average Brent price expected to remain near $62 per barrel this year and next, “which is lower than prices in recent weeks but is higher than the average in 2017 by less than $8 per barrel.”

Brent averaged $54 per barrel in 2017, the agency said.

EIA expects West Texas Intermediate crude oil prices to average $4 per barrel lower than Brent this year and next.

Natural gas production increasing

EIA said U.S. dry natural gas production is estimated to have averaged 73.6 billion cubic feet per day last year and is forecasting that level will rise to an average of 81.7 bcf per day this year - a new record. That would be 8.1 bcf per day higher than 2017 level, EIA said, “and the highest annual average growth on record.”

The agency also expects natural gas production to increase in 2019, with forecast growth of 1 bcf per day.

The Henry Hub spot oil price averaged $2.66 per million British thermal units in February, down $1.03 from January. EIA said it expects natural gas prices to moderate in the coming months based on a forecast of record natural gas production levels.

Henry Hub spot prices are expected to average $2.72 per million Btu in March and $2.99 for all of 2018, rising to an average of $3.07 in 2019.

Market issues

EIA said that although crude oil prices declined in February after seven consecutive months of increases, “most fundamental crude oil supply and demand indicators suggest global petroleum inventories are declining.”

Commercial petroleum inventories in Organization for Economic Cooperation and Development countries declined to 2.83 billion barrels in February, down 211 million barrels from February 2017 and the largest annual decrease in inventories since 2003, the agency said. Inventories are 40 million barrels higher than the five-year average for February, “the narrowest difference to five-year average levels since November 2014, suggesting an increasingly balanced market.”

The Brent-WTI spread was the lowest in more than six months, closing at $3.03 per barrel March 1. “Several factors specific to the crude oil market in the U.S. midcontinent could be contributing to a narrowing spread,” EIA said, including a continued decrease in crude oil stocks in Cushing, Oklahoma, with reports that the Keystone, which flows into Cushing, continued to operate below nameplate capacity. EIA also cited an all-time high for crude refinery inputs in Petroleum Administration for Defense District 2 and higher export demand, with weekly exports more than 2 million bpd for the week ending Feb. 16, the second highest since it began publishing weekly export data in 2016.

EIA said the Louisiana Offshore Oil Port, the largest crude oil import facility in the U.S., recently began to test loading crude oil for export and further infrastructure developments along the U.S. Gulf Coast could allow more crude exports.

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