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EIA forecasts growth in US production Projection for 2017 up 100,000 bpd from previous estimate on higher oil prices; April North Sea Brent up $3 per barrel from March KRISTEN NELSON Petroleum News
Crude oil prices are rising along with the forecast for U.S. production, the U.S. Energy Information Administration said in its latest Short-Term Energy Outlook, released May 10.
The average price for North Sea Brent was $42 per barrel in April, up $3 per barrel from March, the agency said, attributing the price increase to improving economic data, growing supply disruptions, falling U.S. crude oil production and falling U.S. rig counts.
So where does the U.S. production increase come in? It’s in the forecast for 2017.
“U.S. crude oil production in 2017 is expected to be more than 100,000 barrels per day higher than previously forecast in response to higher oil prices,” EIA Administrator Adam Sieminski said in a statement.
EIA’s forecast is for U.S. crude oil production to decrease from a 2015 average of 9.4 million bpd to 8.6 million bpd this year and 8.2 million bpd in 2017. That 2017 forecast is 100,000 bpd higher than the agency forecast in April because of expected higher crude oil prices.
Lower 48 onshore U.S. crude oil production is estimated to have fallen by 700,000 bpd since last April to an average of 9 million bpd this April, with the entire decline in the Lower 48 onshore.
EIA said that based on its current oil price forecast it expects oil production to decline in most Lower 48 onshore regions.
“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. The availability of capital for many smaller producers will likely be limited by the prospect of 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. That lower onshore investment is expected to reduce the rig count for oil drilling and well completions both this year and next.
Rig and well productivity are increasing and drilling and completion costs are falling, but EIA said despite those factors the price outlook is expected to limit onshore drilling and completions.
Baker Hughes’ rig counts are continuing to decline and that “continues to limit EIA’s forecast of future drilling and production through 2017.”
Rapid production fall EIA said U.S. crude oil production is projected to decline from 9.1 million bpd in the first quarter of this year to 8.1 million in the third quarter of 2017, a production level down 1.6 million bpd from April 2015, which saw the highest monthly production rate since April 1971.
The agency expects the most rapid production drop to occur between April and September of this year, with an average drop of some 160,000 bpd each month. Flat production is expected from October through July 2017, averaging some 8.2 million bpd.
EIA expects production to rise in late 2017, reflecting “productivity improvements, lower breakeven costs, and forecast oil price increases.” The agency notes that its forecast “remains sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators.”
Crude prices up EIA said Brent crude oil prices are forecast to average $41 per barrel this year, rising to $51 in 2017. Both numbers are increases over the April forecast, a $6 increase for 2016 and a $10 increase for 2017.
The April average for the Brent crude oil spot price, $42 per barrel, was a $3 increase from March, the third consecutive increase in the monthly average and the highest monthly average for Brent so far this year, the agency said.
EIA cited several factors for upward pressure on crude oil prices in April: “improving economic data and related indications that global oil demand growth is accelerating; ongoing declines in the U.S. rig count and crude oil production; and growing oil supply outages.”
An expected growth in global inventories will limit upward price pressures in coming months, EIA said, with Brent expected to average $42 per barrel in the second and third quarters, rising to $44 in the four quarter because of slowing global oil inventory growth.
The agency said it expects global oil inventory draws to begin in the third quarter of 2017, contributing to forecast rising prices, which are expected to accelerate later in 2017.
The higher oil price forecast compared with April “largely reflects tighter market balances, particularly for the second half of 2017, based on a stronger outlook for global oil consumption,” the agency said.
“Higher oil demand in China and India will contribute to a drawdown in global oil inventories during the second half of 2017,” Sieminski said.
West Texas Intermediate is forecast to average slightly less than Brent in 2016 and the same as Brent in 2017.
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