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EIA sees large drop in US oil production Fourth consecutive month of increase in Brent, up $5 from April to $47 per barrel in May, since 12-year low of $31 in January KRISTEN NELSON Petroleum News
The North Sea Brent crude oil spot price averaged $47 per barrel in May, up $5 from April and the fourth consecutive monthly increase since the price reached a 12-year low of $31 per barrel in January, the U.S. Energy Information Administration said June 7 in its Short-Term Energy Outlook.
The agency attributed the price increase to growing global oil supply disruptions, rising oil demand and falling U.S. crude oil production.
“Low oil prices continue to cut into domestic oil production, with U.S. monthly oil output not expected to start steadily increasing until the end of 2017,” EIA Administrator Adam Sieminski said in a statement.
Factors do not all favor increasing oil prices.
“Global oil inventories are expected to continue increasing through mid-2017, which could help moderate oil prices during that period,” Sieminski said.
EIA said Brent is projected to average $43 per barrel this year and $52 in 2017, forecasts which are up $3 and $1 per barrel, respectively, from the agency’s April forecast.
West Texas Intermediate, the benchmark U.S. crude oil price, is forecast to be slightly lower than Brent this year and about the same as Brent in 2017, the agency said.
US production U.S. crude oil production averaged 9.4 million barrels per day in 2015 and is forecast to average 8.6 million bpd this year and 8.2 million bpd in 2017, EIA said, with those volumes unchanged from last month’s forecast.
May production is estimated to have averaged 8.7 million bpd, more than 200,000 bpd below the April level and some 1 million bpd below the April 2015 average of 9.7 million bpd.
Sieminski said the U.S. production decline in May is “expected to be the largest drop in monthly output since Hurricane Ike knocked out a big chunk of offshore oil production in September 2008.”
EIA said U.S. production has fallen by more than 900,000 bpd since April 2015, with almost all of that production decline coming from the Lower 48 onshore.
Price driver decline EIA said its forecast for continuing U.S. onshore production declines is expected to continue through mid-2017, based on the current price forecast.
“The expectation of reduced cash flows in 2016 and 2017 has prompted many companies to scale back investment programs, deferring major new undertakings until a sustained price recovery occurs,” the agency said. Smaller producers will likely face a limited availability of capital due to expected higher interest rates and tighter lending conditions, “giving rise to distressed asset sales and consolidation of acreage holdings by firms that are more financially sound,” EIA said, with lower onshore investment expected to reduce the count of oil-directed drilling rigs and well completions this year and next.
EIA said it expects U.S. crude production to decline to an average of 8.1 million bpd in the third quarter of 2017, which would be 1.6 million bpd below the April level, which was the highest monthly production since April 1971.
Production is expected to drop most rapidly from April through September of this year, declining an average of 170,000 bpd each month, and becoming relative flat from October through July 2017, averaging 8.2 million bpd.
Production is expected to rise in late 2017, EIA said, reflecting “productivity improvements, lower breakeven costs, and forecast oil price increases. The forecast remains sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators.”
Natural gas Marketing natural gas production was 79.1 billion cubic feet per day in March, a 1 bcf per day decline from a record high in February, EIA said. Texas, the largest natural gas producing state, saw average daily production decline. Marcellus Shale production declined in Pennsylvania, Ohio and West Virginia, with the low price being one of the factors in declining production, which fell to $1.73 per million Btu in March before rising slightly in April and May.
EIA said its most recent survey indicates a decline in natural gas production in March and the agency expects only a slight rise in production through the remainder of the year because of low prices and declining rig activity.
“In 2017, production is expected to rise in response to forecast price increases” and LNG export increases, with production expected to rise 1 percent this year and by 2.3 percent in 2017.
Henry Hub natural gas spot prices averaged $1.92 per million Btu in May, unchanged from April. Prices were relatively low over the 2015-16 winter because of warmer-than-normal temperatures, record inventory levels and production growth.
EIA said it expects natural gas prices to gradually rise over the summer as demand from the electric power sector increases, but forecasts prices lower than last summer.
Average monthly Henry Hub spot prices are forecast to remain below $3 per million Btu through the end of the year and to average $2.22 per million Btu this year and $2.96 in 2017.
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