The decline in US oil production appears to be over, the US Energy Information Administration said Tuesday.
US oil output, which climbed from 6.14 million b/d in January 2012 to a recent peak of 9.5 million b/d in December 2014, may have bottomed out at 8.69 million b/d in July 2016 and now appears to be on a new upswing, the EIA said in its Short-Term Energy Outlook.
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The agency forecast US production, which averaged 8.89 million b/d in 2016, to climb back above the 9 million b/d threshold in April 2017 and reach as high as 9.44 million b/d by December 2018.
"The general decline in US crude oil production that began almost two years ago is likely over, as higher average oil prices and improvements in drilling efficiency are giving a boost to output," EIA Administrator Adam Sieminski said in a statement.
US production late last year climbed from 8.81 million b/d in October to 8.86 million b/d in November and to 8.9 million b/d in December, marking the first output increase over three consecutive months since early 2015, Sieminski said.
Production is expected to average 9 million b/d in 2017 and 9.30 million b/d in 2018, both up from the 2016 average of 8.89 million b/d, but below the 9.42 million b/d hit in 2015 -- the highest level in decades.
EIA has been steadily increasing its supply estimate for 2017, as the decline in US supply in response to relatively low prices has not been as significant as initially assumed. In April, for example, EIA had forecast that 2017 production would fall to average of 8.04 million b/d, nearly 1 million b/d below what it is currently forecasting.
"The upward revision largely reflects assumptions of higher drilling activity, drilling efficiency, and well-level productivity than assumed in previous forecasts," EIA said in the report.
EIA said that higher-than-expected crude oil prices have allowed domestic producers to increase active rigs at a faster pace than initially predicted.
Still, EIA said the forecast "remains very sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators."
Highlights from Tuesday's report:
SUPPLY
- EIA sees US Gulf of Mexico production averaging 1.7 million b/d in 2017, up 100,000 b/d from 2016, and climbing to 1.9 million b/d in 2018 as new projects, including Chevron's Big Foot and the Hess-operated Stampede, begin operations over the next two years.
- Alaska crude oil production is expected to remain at about 500,000 b/d through 2018.
- OPEC members produced an average 32.89 million b/d of crude in 2016, up 800,000 b/d from 2015. OPEC members produced 33.55 million b/d in December, down slightly from 33.76 million b/d in November, ahead of planned January production cuts.
- EIA expects OPEC production to rise to 33.22 million b/d in 2017, with Iran and Libya accounting for nearly all of the increase.
- Saudi Arabia trimmed output to 10.5 million b/d in December from 10.6 million b/d in November.
- Iraq production slipped to 4.61 million b/d in December from 4.62 million b/d in November.
- Venezuelan production fell to 2.05 million b/d in December, a 14-year low, from 2.08 million b/d in November.
- Nigerian output fell to 1.48 million b/d in December, down 8% from 1.61 million b/d in November.
- Libyan production jumped to 620,000 b/d in December, up 7% from 580,000 b/d in November.
- Iranian output rose slightly to 3.72 million b/d in December, from 3.7 million b/d in November.
- The agency expects OPEC surplus crude capacity to be 1.3 million b/d in 2017 and 1.2 million b/d in 2018.
- China posted the largest production decline outside the US in 2016, with a drop of 300,000 b/d from 2015. EIA expects China's output to continue to decline by 100,000 b/d in both 2017 and 2018 because of companies' investment cuts and relatively few new offshore developments.
- Canadian output was relatively flat in 2016 because of wildfires in Alberta in May-July. But Canadian production is expected to increase by about 200,000 b/d in both 2017 and 2018.
- Russian oil output broke post-Soviet records several times in 2016, EIA said, with liquid fuels production averaging 11.2 million b/d, up 200,000 b/d from 2015. While liquids fuel output will keep growing this year, EIA expects Russian crude production to decline through most of 2017, in part because of its agreement with OPEC.
DEMAND
- Total world consumption, which average 93.82 million b/d in 2015 and 95.57 million b/d in 2016, is expected to climb to 97.2 million b/d in 2017 and 98.71 million b/d in 2018.
- Consumption growth is expected to come largely from China, where increased use of gasoline and jet fuel is expected to boost consumption growth by 300,000 b/d in both 2017 and 2018, and in India where consumption growth is expected to grow by 200,000 b/d over that same timeframe.
- EIA said a sharp upward revision to mid-2016 consumption by OECD countries led to a global oil inventory draw in Q3, the first quarterly draw since late 2013. But the Q3 draw was more than offset by substantial stock builds in Q1 and Q4, EIA said, leading to an annual average build for 2016.
- Total US liquids fuel consumption, which averaged 19.4 million b/d in 2015 and 19.59 million b/d in 2016, is expected to average 19.85 million b/d in 2017 and 20.22 million b/d in 2018.
- US motor gasoline consumption is forecast to climb from 9.28 million b/d in 2016 to 9.32 million b/d in 2017 and to 9.41 million b/d in 2018, a potential new record high. But the estimated growth in gasoline consumption would be higher were it not for increases in US vehicle fleet fuel economy, which appear to be exceeding expectations.
PRICES
- EIA forecast WTI prices to average $52.50/b and Brent to average $53.50/b in 2017, both up $1.84/b from last month's price projections and the highest since the agency began its projections for 2017 a year ago. In March, EIA had forecast both WTI and Brent to average $40.09/b in 2017.
- EIA forecast WTI to average $55.18/b and Brent to average $56.18/b in 2018, the first time it has forecast 2018 prices for the monthly outlook.
- "Some upward price pressures are expected to emerge in 2018," EIA said, pointing to a "more balanced" global market by the middle of next year.
- "Uncertainty remains as to the effectiveness and duration of the concurrent OPEC and non-OPEC production cuts, which could influence prices in either direction," EIA said. "Also, the potential for continued efficiency gains and cost reductions from non-OPEC producers in the new higher price environment could result in additional volumes of supply that could put downward pressure on prices."
- EIA again cautioned that the values of futures and options contracts continue to highlight the "heightened volatility and high uncertainty" in the price outlook. Trading shows that the market expects WTI prices to average between $43/b and $71/b in April, EIA said.
