US Daily Crude Oil Production Increase
From 1 Million Barrels Last Year to 170,000 Barrels This Year
Morgan Stanley Predicts Brent Oil to Rise to $85
The U.S. 'shale boom,' which has served as a safety valve for global crude oil supply, is slowing down. Recently, as the rise in U.S. oil production has decelerated due to falling oil prices, there are forecasts that this could once again stimulate oil prices.
According to the Wall Street Journal (WSJ) on the 19th (local time), U.S. crude oil production, which increased by 1 million barrels per day in 2023, is expected to rise by only 170,000 barrels per day this year. Excluding the COVID-19 pandemic period, this is the smallest annual increase since 2016.
This outlook is attributed to oil producers cutting back on production as oil prices have stabilized recently. International oil prices, based on the global benchmark Brent crude, surged to $127 in March 2022 right after the Ukraine war, then fell to the $90 range in October last year, and are currently trading in the low $80 range.
According to Baker Hughes, a specialist oil exploration company, the number of oil rigs operating in the U.S. has decreased by about 20% to approximately 500 since 2022. Amid consolidation moves within the oil industry, companies that have laid down rigs are being acquired by larger firms. Energy market research firm Enverus reported that 39 oil exploration and production companies were sold to publicly listed companies last year. Recently, Endeavor Energy was also sold to Diamondback Energy. According to S&P Global Commodity Insights, 10 oil producers like Endeavor Energy accounted for half of the production in the Permian Basin, the largest oil-producing region in the U.S., from late 2019 to early 2023. The sale of companies like Endeavor Energy, which increased production when prices were high to stabilize prices, can be interpreted as a signal of future declines in oil production.
Even the oil giants listed on the stock market are turning their attention to shareholder return policies such as dividends rather than expanding oil production.
As signals of a slowdown in the growth of U.S. oil production continue, the market is forecasting that oil prices may rise. Until now, increases in U.S. oil production have limited sharp rises in oil prices despite OPEC's production cuts and instability in the Middle East, but it is now difficult to expect that effect any longer.
Morgan Stanley has lowered its U.S. oil production forecast for this year and adjusted its global benchmark Brent crude price forecast, raising it from the previous $75?80 per barrel to $80?85 per barrel.
Paul Horsnell, Head of Commodities Research at Standard Chartered Bank, said, "Unless there is a very dramatic technological innovation, there is no ease of growth (in oil production)."
However, there are also views that the increase in U.S. oil production will continue. World Chancellor, an energy strategist at Macquarie, expects U.S. daily oil production in December this year to increase by 660,000 barrels compared to a year earlier. The decrease in rigs implies improved drilling efficiency, and companies are also expected to increase energy production. Chancellor said, "We have seen these (oil) companies repeatedly re-emerge," adding, "This is an issue to watch in 2024."
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