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Underestimated Growth in US Oil Production?

EIA US Oil Production - Flanges

 

In January we talked about the record high United States oil production reached in 2018, with some speculation on oil production moving into 2020. Now with the first two months on 2019 almost under our belt, it is looking like the U.S. oil production shows little to no signs of slowing down and may have been underestimated…

 

Based on 11 months of data from 2018 we are seeing an overall increase in oil demand, 0.56 mb/d year over year. Even though the demand for jet kerosene and jet fuel dropped last year, the slack was picked up by an increase in demand from the petrochemical and industrial sectors driving into a net positive U.S. demand for the year. 2019 is expected to still show growth, however, it is expected to be less than the previous few years.

 

We saw January’s predictions for the U.S. at 12.1 mb/d by the end of 2019 and 12.9 mb/d by 2020, while the February predictions have already been increased to 12.4 mb/d and 13.2 mb/d respectively. This ultimately will bring great economic gains to the plays/basins situated around the U.S. as well as to the other industries supporting their growth, such as valve / flange manufacturers, new opportunities for pipe fitters to fuse a Weld neck flange and a pipe, or to the local stores who welcome the increased customer traffic and revenues. However, with such rapid industrial growth strain has been put on the local infrastructure and governing officials as they try to catch up.

 

Possible reasons for the underestimation of oil production in the U.S. may be due to the lowering cost of technology paired with greater operational efficiency than expected, but with such a complex beast it is hard to pinpoint any one explanation. With so many changes so quickly in the industry, it can be hard to accurately predict U.S. oil growth, but the EIA has consistently been updating forecast models and KPI’s (Key Performance Indicators) to close the gap between what is predicted and reality. 

 

As new data presents itself, be on the lookout for a potential up/downticks in U.S. production/demand but currently, it looks like we are in a positive trajectory and will keep ramping up production for the foreseeable future. Globally speaking, this could have a long-term negative effect on the price per barrel. OPEC and Russia are working together to stabilize supply/demand by reducing production for the first 6 months of 2019 by approximately 1.2 mb/d collectively. This action has helped stabilize the price per barrel for now, but if the United States fills the vacuum left over and/or destabilizes the supply and demand of the industry we could be in for a rude awakening.

 

Stay tuned for the March Update!  

 

  • https://www.eia.gov/outlooks/steo/pdf/steo_full.pdf?
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