Decline in output of crude like a ‘natural disaster’
U.S. crude production in April declined by the largest amount in more than a decade, according to a new report, as oil producers reacted to collapsing demand and prices.
The nation’s output was slashed by 670,000 barrels a day during the month, falling to about 12.1 million barrels a day from about 12.7 million in March, according to a report published Tuesday by the Energy Information Administration, which tracks monthly production levels. April was the first full month in the U.S. with business and travel restrictions to fight the spread of the coronavirus.
Texas, the nation’s top oil producing state, saw the biggest decrease in crude production in the country during April, falling by 234,000 barrels per day in April to 5.2 million barrels a day, the EIA said.
“Production declines of that magnitude usually arise only in natural disasters such as hurricanes,” the federal agency said in the report.
Oil and gas companies in March began temporarily shutting down thousands of wells in response to the pandemic-induced demand destruction that sank prices to a record negative $37.63 per barrel in April. That month saw the largest drop in crude production since hurricanes Ike and Gustav reduced production by more than 1 million barrels per day in September 2008.
At the same time, crude producers have halted drilling new wells in response to the oil crash. Rystad Energy, a Norwegian research firm, on Tuesday said it expects energy companies around the world to drill about 55,350 wells this year, the lowest in at least 20 years and a 23 percent decrease from almost 72,000 wells drilled worldwide in 2019.
Karr Ingham, a petroleum economist with the Texas Alliance of Energy Producers, said he was surprised Rystad’s forecast
for drilling activity this year was not worse, considering the number of operating rigs in the U.S. has fallen by more than 60 percent since mid-March. The figure has declined for 20-straight weeks to 258 from 791 in February, according to Baker Hughes, a Houston oilfield services company.
“If you spin that out, the decline in rig count alone in Texas might suggest the impact on number of wells drilled will be worse,” Ingham said. “The rig count is still going down, so the number of wells drilled will keep going down.”
In recent weeks, however, energy companies have begun to reopen closed wells and restart drilling as business restrictions eased and demand and the price of crude slowly increased. The price of West Texas Intermediate, the U.S. benchmark, settled Tuesday at $40.29.
Still, the EIA expects U.S. crude production to average 11.6 million barrels per day in 2020, down from an average of 12.2 million per day in 2019.
The future of the oil and gas industry’s recovery is tenuous, Ingham said. OPEC and Russia are to meet Wednesday to discuss new production levels, and the number of coronavirus cases has risen sharply in the U.S. and other countries recently.
“I have the sense that crude oil prices could be worse in the near term,” Ingham said. “It won’t take us back to the catastrophic levels of low demand at the worst of the pandemic, but anything that slows the economic progress or sends it into a mild decline will have some effect on crude oil prices. It’s a choppy process.”