The two year slide in US oil production seems to be nearing the end, according to the Energy Information Administration which raised its 2017 output forecast and says it is looking for a year-on-year rise in output in 2018.
The EIA forecast adds to the sudden eruption of scepticism about the sustainability of the price rally in the wake of last November’s OPEC production cap.
The EIA forecasts domestic oil production of 9 million barrels a day this year, up from its December forecast of 8.78 million and an estimated 2016 output level of 8.89 million.
For 2018, its initial forecast stands at 9.3 million barrels a day – still well sort of the most recent high of 9.225 million barrels a day in December, 2015.
Rising prices have seen US companies continue to add more oil drilling rigs – four oil rigs were added in the week to January. 6, bringing the total count to 529, the most since December 2015, energy services firm Baker Hughes said on Friday.
As a result of the increased drilling for new production, US oil output has risen by over 4% since its 2016 low in May – June to almost 8.8 million barrels a day, although this is still 8.75% under its 2015 peak.
“The general decline in U.S. crude-oil production that began almost two years ago is likely over, as higher average oil price and improvements in drilling efficiency are giving a boost to output,” said EIA Administrator Adam Sieminski, in a statement accompanying its latest monthly short term energy outlook.
“Final data are expected to show that US oil production increased during the last three months of 2016, the first quarterly output increase since early 2015,” the EIA said.
The release of the output increase comes after the OPEC producer agreement last November, which excludes the US among others, but the data reflects production before the pact took effect starting this month.
OPEC members have pledged to cutback output to a ceiling of 32.5 million barrels a day. Other producers, which include Russia, promised to ease back output by nearly 600,000 barrels a day. The output cuts represent a roughly 2% reduction of global production.
“Some countries within the agreements have confirmed with customers that they will reduce oil deliveries in the coming months, providing more credibility to the stated production targets,” the EIA said in its report.
But “some countries not subject to the terms of the agreement could increase production in the coming months, which is expected to result in an increase in global oil supplies and could delay consistent global inventory withdrawals until the second half of 2018,” the EIA said.
“Uncertainty in the production response from Libya, Nigeria, and the United States in the coming months presents some of the largest risks to the timeline of oil market rebalancing. “
In its report, the EIA forecast OPEC crude oil and liquid fuels supply at 40.27 million barrels a day, up from an estimated 39.6 million in 2016. For 2018, it forecast a rise to 40.94 million a day. Non-OPEC supplies of crude and liquid fuels are seen at 57.26 million this year and at 57.92 million a day next year.
But the EIA data also showed expectations for increases in total world consumption of crude oil and liquid fuels. It sees 2017 consumption at 97.2 million barres a day, up from an estimated 95.57 million in 2016, with a further rise to 98.71 million projected for 2018.
Against that backdrop, the government agency lifted its prices forecasts for 2017 West Texas Intermediate oil to $US52.50 a barrel for 2017 from a previous forecast of $US50.66. It forecast $US55.18 for 2018. Brent is forecast at $US53.50 this year, with a climb to $US56.18 for next year.
Oil futures fell sharply for a second straight session Tuesday, with prices logging their lowest settlement in over a month, pressured by growing concerns over the potential for rising global crude output despite the recent pact among major producers to cut production.
February West Texas Intermediate crude fell $1.14, or 2.2% in New York on Tuesday, to settle at $US50.82 a barrel—the lowest finish since early December.
