In This Article:
* Repeats Jan. 22 column with no changes.
* John Kemp is a Reuters market analyst. The views expressed are his own
* Chartbook: https://tmsnrt.rs/2Ho3ICn
By John Kemp
LONDON, Jan 22 (Reuters) - U.S. crude oil production will continue to grow through 2019 and 2020, but at a much slower pace than in 2018, according to the latest forecasts from the U.S. Energy Information Administration.
U.S. crude and condensates production is estimated to have risen by almost 1.6 million barrels per day last year, according to the agency, the largest annual increase in history.
But the agency forecasts growth will slow to just over 1.1 million barrels per day in 2019 and less than 0.8 million bpd in 2020 (“Short-Term Energy Outlook”, EIA, Jan. 15).
Growth from the Lower 48 states excluding federal waters in the Gulf of Mexico is expected to slow even more sharply from almost 1.6 million bpd in 2018 to 0.95 million bpd in 2019 and 0.5 million bpd in 2020.
Surging U.S. production, mostly from onshore shale plays, contributed to the oversupply which emerged in the oil market during 2018 and the consequent fall in prices during the fourth quarter.
Slower growth from the shale plays will therefore have to play an important role in rebalancing the market during 2019 and 2020, even if the global economy avoids a recession (https://tmsnrt.rs/2Ho3ICn).
“The dramatic fall in oil prices in the fourth quarter was largely driven by shale production surprising to the upside as a result of the surge in activity earlier in the year”, oilfield services firm Schlumberger told investors last week.
The shale surge, combined with generous waivers from U.S. sanctions on Iran’s oil exports and the sharp fall in global equity markets, “created a near perfect storm to close out 2018”, according to Schlumberger.
But the company sees a more balanced market ahead as sanctions waivers are not renewed, the United States and China resolve their trade differences, and lower drilling activity in the second half of 2018 impacts production growth (“Schlumberger announces full-year and fourth-quarter 2018 results”, Schlumberger, Jan. 18).
DECELERATION
Benchmark U.S. crude futures peaked at around $75 per barrel in early October and are now trading at less than $55, the largest decline since the slump in 2014/15.
U.S. crude futures have fallen to a substantial discount to Brent, and many shale producers are receiving even less, highlighting the extent of the local oversupply.
Lower U.S. crude prices are already helping readjust the market by tempering the onshore drilling and fracking frenzy compared with earlier last year (“Drilling productivity report”, EIA, Dec. 17).