EIA: US crude production down in October

Agency expects decrease through third quarter 2016; projects 9.3 million bpd from US this year, dropping to 8.8 million bpd in 2016

KRISTEN NELSON

Petroleum News

U.S. crude oil production declined by 40,000 barrels per day in October and is expected to decline through the third quarter of 2016, the U.S. Energy Information Administration said Nov. 10 in its Short-Term Energy Outlook.

For 2015, U.S. crude oil production is expected to increase to an average of 9.3 million bpd from a 2014 average of 8.7 million bpd, and then decrease to 8.8 million bpd in 2016. EIA said its current U.S. 2016 forecast is 100,000 bpd lower than its forecast in October with the lower forecast reflecting “lower crude oil prices and rig counts in 2016” than the agency was projecting in October.

Through the first eight months of 2015 U.S. production averaged 9.4 million bpd, 100,000 bpd higher than average production during 2014’s fourth quarter.

EIA said “monthly crude oil production started to decrease in the second quarter of 2015, led by Lower 48 onshore production,” which fell from more than 7.6 million bpd in March to some 7.1 million bpd in October.

Since April the drop in U.S. production is some 500,000 bpd, averaging 9.1 million bpd in October, and expected to decline through September 2016 to some 8.5 million bpd, almost 1.1 million bpd less than the 2015 peak reached in April.

U.S. production is forecast to begin rising in late 2016, EIA said, returning to an average of 8.8 million bpd in the fourth quarter.

“Expected crude oil production declines through September 2016 are largely attributable to unattractive economic returns in some areas of both emerging and mature onshore oil production regions, as well as seasonal factors such as anticipated hurricane-related production disruptions in the Gulf of Mexico. Reductions in 2015 cash flows and capital expenditures have prompted companies to defer or redirect investment away from marginal exploration and research drilling to focus on core areas of tight oil plays. Reduced investment has resulted in the lowest count of oil-directed rigs in about five years and in well completions that are significantly behind 2014 level,” the agency said.

Those reductions in U.S. production impact world production.

“Total oil production from non-OPEC countries is expected to decline next year for the first time since 2008, because of lower oil output from the United States,” said EIA Administrator Adam Sieminski.

EIA said North Sea Brent crude oil prices averaged $48 per barrel in October, down $1 per barrel from September. Brent prices have ranged between $45 and $53 a barrel on a daily basis since the beginning of September, the agency said, and are forecast to average $54 per barrel this year and $56 per barrel in 2016. EIA said the 2015 forecast is unchanged from its October forecast, but the 2016 forecast is $2 per barrel lower.

West Texas Intermediate is forecast to average $4 per barrel below Brent this year and $5 below Brent in 2016.

The agency said oil price volatility declined in October, but was still elevated compared to 2013-14, with Brent spot prices changed by at least 3 percent on four different trading days in October.

The agency said continuing increases in liquids inventories worldwide puts downward pressure on prices. In the first three quarters of the year, inventories rose by an estimated 1.8 million bpd, compared with an average increase of 500,000 bpd in 2014.

WTI averaged $46 per barrel in October, up slightly from the September average, with inventories at Cushing, Oklahoma, relatively unchanged from a month earlier.

EIA said its crude oil price forecast “remains subject to significant uncertainties as the oil market moves toward balance. During this period of price discovery, oil prices could continue to experience periods of heightened volatility.” Among uncertainties faced by the oil market are how quickly and at what volumes Iranian oil reenters the market, the strength of oil consumption growth and how non-OPEC production responds to low oil prices, the agency said.

EIA said the Henry Hub spot price for natural gas averaged $2.34 per million Btu in October, down 32 cents from the September price. The agency said warm weather at the end of October, strong inventory, continuing production growth and expectations for a warm winter “contributed to spot prices falling to three-year lows in recent weeks.”

EIA is forecasting monthly Henry Hub averages to remain lower than $3 per million Btu through June. Henry Hub is projected to average $2.69 per million Btu this year and $3 in 2016.

Total marketed natural gas production in the U.S. in August was 81.3 billion cubic feet per day, a record high EIA said. Marketed natural gas production in the U.S. is projected to increase by 4.7 bcf per day, 6.3 percent, this year, and by 1.6 bcf per day, 2 percent, next year, with most of the growth expected to come from the Marcellus shale.