Daily Management Review

American oil production is heading towards a record high


06/07/2017


The Energy Information Administration (EIA) of the United States has published another short-term forecast on the level of oil production in the country. According to the report, US oil companies will be producing an average of 10 million barrels a day in 2018. Thus, the record set back in 1970, when the average annual production was 9.6 million barrels per day, could be updated. With such a forecast, the US can overtake Saudi Arabia (9.9 million barrels per day), if it does not increase its oil production.



pixabay
pixabay
The record for US oil production, which has remained unbroken for almost half a century, may be hit already next year. This forecast was published on Tuesday by the Energy Information Administration (EIA) of the United States. According to the organization’s data, an average of 8.9 million barrels of oil was produced in the US in 2016, this figure should reach 9.3 million by the end of this year, and in the next - 10 million barrels, which will become an absolute record.

Despite all the attempts of the oil cartel to reduce supply in the market and thus stimulate the growth of oil prices, the level of production in the US will only grow in the near future. The number of oil rigs in the country has been increasing for 20 consecutive weeks, which became the longest series in the last three decades. Their number has doubled in 2017. "The main source was the increase in the volume of drilling operations in pools with hard-to-recover oil located in the US. This is especially true for Texas", - explained EIA’s current administrator Howard Gruenspecht.

The EIA also lowered its forecast for the level of prices for WTI oil for 2018 from $ 55.10 per barrel to $ 53.61. As for Brent, its average price will reach $ 55.61 in the next year, according to the latest forecast.

According to the estimates of the US Department of Energy, about 690 million barrels of oil have been accumulated in American oil storages. This is much more than the minimum reserve set by the International Energy Agency. According to the agency's standards, the stock of "black gold" should be enough for at least 90 days. Now the United States stores so much oil that it will last almost 150 days.

Moreover, US President Donald Trump intends to sell half of the strategic oil reserve of the United States. The strategic reserve of US oil was accumulated by the administration of the previous US President Barack Obama at an average price of $ 29.7 per barrel, whereas now "black gold" is almost twice as higher as this mark.

At the moment, half of the US strategic oil reserves are estimated at 344 million barrels. This is 10 times more than all OPEC countries produce per day. Having spilled this amount of raw materials into the market, Washington will bring down prices to the horizon of $ 40, and the possibility of further decline will still remain.

Despite the fact that prerequisites for a possible drop in oil prices are already abound, Donald Trump prepared another surprise. There is a sharp increase in shale production in the US. In conjunction with new projects in Canada and Brazil, the increase in the rate of US production in total promises to give 1.4 million barrels of oil per day and completely cover the US domestic demand for fuel, which in the summer is growing significantly. In addition, Libya and Iran are planning to add another half a million barrels daily.

A promised gift from Trump is a permit for resuscitation of oil projects on the American shelf. In the future this will further increase the supply of raw materials in the world market.

Overproduction of oil in the market will continue. Analysts do not count on the positive dynamics with respect to the growth of demand anymore. According to the International Energy Agency, at present almost all developed countries use oil at their peak and are not going to increase demand in the foreseeable future. There is still hope for additional exports to India and China, but the economies of these states are rather unstable, so they should not be bet on. By the way, China can definitely be called the main private participant in the OPEC+ deal. Beijing buys 15% more oil than it actually consumes. This is required to fill the strategic reserve. The daily volume of such purchases is 1.1 million barrels. If China abandons them, then the excess oil in the market will be comparable to the record level of 2015, when commodity prices fell to $ 42.

source: reuters.com






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