Will 13 million barrels a day be lucky for American oil industry?
In late 2017, the United States crossed the threshold of producing 10 million barrels of crude oil per day and hasn’t looked back, surpassing Russia and Saudi Arabia as the world’s largest energy giant.
That 10-million-barrel mark was one reached only once before, during a brief one-month blip way back in 1970. The United States lost its position as the top oil producer in the 1970s, and it once seemed like the country would never get there again.
After all, as recently as a decade ago, the nation was only churning out about 5 million barrels of oil per day, which is only marginally more than Iraq’s output. The shale revolution changed all of that as its focus switched from natural gas to crude oil.
Now, we enter 2020 on the verge of surpassing 13 million barrels of oil daily — more oil than any nation has ever produced.
The question now is whether 13 million barrels is an unlucky number.
An interesting dichotomy is playing out with the rising production and falling U.S. shale activity. The number of rigs drilling for oil and gas plunged by about 25 percent in 2019 because of modest oil prices, budget cutbacks and job reductions.
U.S. shale output is slowing mightily, but it’s still ticking upward. At some point, a reckoning will come when U.S. output finally peaks and falls. But we’re not there yet, and we may not get there in 2020, since oil producers have learned to drill more wells more quickly with each rig and cut costs.
The 13-million-barrel threshold could be surpassed any day now, or it could take several more weeks, but the U.S. Energy Department projects the country to average 13.2 million barrels a day for the entirety of 2020. That’s after the U.S. entered 2019 at about 12 million barrels a day. The most recent monthly numbers, from October, show almost 12.7 million barrels a day, with weekly estimates now at 12.9 million barrels.
As the government forecasts, “Production will continue to grow as rig efficiency and well-level productivity rises, offsetting the decline in the number of rigs.”
The U.S. benchmark for oil prices is hovering above $60 per barrel and showing signs of relative health for the first time in months, but energy companies need a sustained period with oil well above $60 to really feel healthy again.
The price jumped above $63 on Friday after President Donald Trump ordered the targeted killing of a top Iranian general and an allied Iraqi militia leader, stoking concerns of a broader conflict.
The so-called OPEC+ group — a Saudi-led cartel that includes Russia and smaller allies as well as OPEC nations — is helping prop up prices by cutting back production more than anticipated for the first quarter of 2020, but it’s likely a short-term fix. It’s unknown what they’ll do next.
At the same time, they’re largely just offsetting a new surge of oil from non-OPEC countries, especially Norway, Brazil, Canada, Guyana and the still-rising U.S. shale.
Or, on a more micro level, if U.S. production growth stalls, it would help boost crude prices. More U.S. output would keep prices down.
As always, it’s a tricky balance. And what’s good for the Houston energy sector isn’t necessarily good for American consumers, who appreciate the cheaper gasoline that comes with lower oil prices.
So maybe it is true that the more things change, the more they stay the same. Happy New Year.