Introduction: As we all know, in the international crude oil market, in addition to OPEC+, an important oil-producing organization, the production of U.S. shale oil is also a very important factor in the supply side of the crude oil market. The continuous increase in U.S. shale oil production in recent years is even more important. Having captured part of the crude oil market, what is the current level of U.S. crude oil production? Can production be fully restored to pre-epidemic levels in the short term?
U.S. crude oil production map
Source: EIA
Looking at U.S. crude oil production levels in the past five years, production was the highest in 2019, with an average of 12.3 million barrels per day. The largest decline in production occurred in 2020. U.S. crude oil production in the week of December 25 was 11 million barrels per day, a decrease of 14.73% from the same period in 2019. The output is lower than that of the past two years, mainly due to the spread of the epidemic around the world since February last year, and the situation in the United States has become more severe. Anti-epidemic blockade measures have been implemented in major areas, terminal demand has weakened significantly, and refinery operating rates have dropped. When crude oil prices were at low levels in March and April, less than 20% of U.S. oilfield services companies still had an advantage in production costs, and the vast majority of companies had fallen below the cost line. Although oil prices rebounded after entering May, the entire upstream industry last year was very sluggish, with a wave of bankruptcies throughout the year. In particular, the bankruptcy rate in the oil services industry achieved historic growth. U.S. producers are also currently trying to stabilize oil output as demand recovers. When the rig count is low, inventory wells are the main way to achieve stable production. Therefore, from July last year to the present, U.S. crude oil production has remained at around 11 million barrels per day, which is less than the production level of the past two years.
Since the beginning of this year, the United States was affected by the cold wave in the week of February 19, and production once dropped to 9.7 million barrels per day, a decrease of 10.19% from the previous week. Crude oil producers in Texas and other oil-producing states have stopped producing between 2 million and 4 million barrels of crude oil per day. But within about two weeks, production returned to pre-cold wave levels. The latest data shows that U.S. crude oil production was 11 million barrels per day in the week of May 21, which was the same as last week and 500,000 barrels per day above the average level of the past five years. Producers are currently relatively conservative in their willingness to increase production, but they are also constrained by Biden’s ban on oil and gas leasing on federal lands. On the one hand, manufacturers are under pressure from their own debts and are in urgent need of cash, so they are more restrained in increasing production; on the other hand, Biden’s regulations also limit the enthusiasm of manufacturers.
U.S. crude oil rig count
Source: EIA
The number of drilling rigs, a leading indicator of crude oil production, cannot be ignored. The number of U.S. crude oil rigs has also been running at a low level since the beginning of this year. The number of U.S. oil rigs in the week of May 21 was 356, an increase of 1.14% from last week. It has increased for the fifth consecutive week. Although it has gradually increased, the growth rate is slow and far from the past. The five-year average level of 614 units is still 258 units away. Higher production will still require more rigs, but producers will continue to cut back on spending this year. The EIA Drilling Productivity Report in January this year predicted that the output of the seven major shale producing areas in the United States has dropped by approximately 470,000 barrels per day for five consecutive months, while the monthly month-on-month decline has expanded month by month. It is reported that U.S. oil companies are no longer eager to increase production for the first time in decades. Even in the Permian, the U.S. shale basin, drillers are no longer chasing high oil prices as they once were. Therefore, it is difficult for U.S. crude oil to fully resume production in a short period of time, which is a positive support for the crude oil market.
Overall, although the crude oil production of non-OPEC+ oil-producing countries is slowly recovering, it is still far from full resumption of production. According to U.S. energy companies, crude oil production in non-OPEC+ countries will increase by 620,000 barrels per day this year, less than 50% of the 1.3 million barrels per day in 2020. The OPEC+ meeting tonight will provide important guidance on whether to continue small growth or make new output decisions. Let us pay attention together.
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