(John Kemp is a Reuters market analyst. The views expressed are
* Chart 1: tmsnrt.rs/2qJXDCG
* Chart 2: tmsnrt.rs/2reYzCF
* Chart 3: tmsnrt.rs/2qJOnyN
* Chart 4: tmsnrt.rs/2qJT5fH
* Chart 5: tmsnrt.rs/2shUbRJ
By John Kemp
LONDON, June 1 U.S. oil production continues to
rise relentlessly, frustrating efforts by OPEC and non-OPEC oil
exporters to rebalance the global market and secure an increase
in the price of crude.
After a devastating slump in 2015 and 2016, the U.S. oil
industry has returned to strong growth, with drilling and output
rising rapidly (tmsnrt.rs/2qJXDCG).
U.S. production is now forecast to grow by an average of
440,000 barrels per day (bpd) in 2017 and another 650,000 bpd in
2018, according to the U.S. Energy Information Administration
U.S. crude and condensates output rose by 62,000 bpd
month-on-month to almost 9.1 million bpd in March (“Petroleum
Supply Monthly”, EIA, May 2017).
Production has increased by more than 530,000 bpd from its
recent low of less than 8.6 million bpd in September, adding to
an already well-supplied global market and delaying a drawdown
Weekly estimates prepared by the agency indicate output
continued to increase in April and May and now stands at around
9.3 million bpd (“Weekly Petroleum Status Report”, EIA, May 19).
While the weekly estimates are considered less reliable than
the more comprehensive monthly numbers, they have generally
provided a good guide to trends in the monthly data (tmsnrt.rs/2reYzCF).
Most of the extra output between September and March came
from oilfields in the Gulf of Mexico, where production increased
by 257,000 bpd, and Alaska, where output was up by 74,000 bpd.
But production from fields in the Lower 48 states excluding
the Gulf of Mexico, most of which comes from onshore shale
plays, also rose, by 200,000 bpd (tmsnrt.rs/2qJOnyN).
In March alone, production in the Lower 48 states excluding
the Gulf of Mexico rose by 35,000 bpd to its highest level in
nearly a year (tmsnrt.rs/2qJT5fH).
BACK TO BOOM
U.S. shale output will almost certainly rise substantially
in the rest of 2017 and into 2018 given the typical six-month
lag between spudding new wells and the beginning of their
Reported output for March mostly reflects wells started
before the end of September 2016, when there were fewer than 425
rigs drilling for oil in the United States, according to
oilfield services company Baker Hughes.
The number of active oil rigs has now increased to 722, and
thousands of extra wells have been drilled in the meantime, with
many still waiting on completion services before starting to
As these wells are hydraulically fractured and connected to
gathering systems, production will increase further in the
remaining months of 2017 and into early 2018.
The speed and scale of the surge in U.S. production has
surprised most within the oil industry, even top forecasters.
The EIA predicts U.S. production will hit 9.74 million bpd
by the end of 2017 and 10.35 million bpd by the end of 2018
(“Short-Term Energy Outlook”, EIA, May 2017).
As recently as the start of the year, the agency was
forecasting output of just 9.22 million bpd by the end of 2017
and 9.44 million bpd by the end of 2018 (“Short-Term Energy
Outlook”, EIA, January 2017).
The EIA has revised its predictions for average production
in 2017 up by 310,000 bpd and its forecast for the average in
2018 up by 660,000 bpd since January (tmsnrt.rs/2shUbRJ).
With output also rising in Brazil, Norway and several other
non-OPEC countries, the scale of the U.S. boom explains why OPEC
and its allies are struggling to engineer a deficit in the
global oil market and push stocks down to their five-year
OPEC and non-OPEC are making slow progress despite reported
high levels of compliance with output cuts implemented from the
start of 2017 and recently extended to the end of March 2018.
Ultimately, prices rather than planned cuts will rebalance
the market, which will most likely require a period of flat or
lower prices to curb shale growth and ensure U.S. output does
not outstrip demand.
(Editing by Dale Hudson)