EIA Increases U.S. Crude Oil Production Forecast
The U.S. Energy Information Administration revises the U.S. crude oil production forecast it publishes in each Short-Term Energy Outlook based mainly on two factors: updates to EIA’s published historical data and EIA’s crude oil price forecast. In the November 2019 STEO, EIA increased its forecast of U.S. crude oil production in 2019 by 30,000 bpd (0.2%) from the October STEO. EIA increased its 2020 crude oil production forecast by 119,000 bpd (0.9%) compared with the October STEO (Figure 1). The increases in crude oil production forecast in the November STEO were primarily driven by
- EIA’s upward revision to historical production in the Lower 48 states of about 90,000 bpd for August, based on EIA’s most recent–October 31, 2019–914 monthly crude oil and natural gas production survey
- Higher initial production for future wells that will be drilled in the Texas Permian region
- Slightly higher crude oil price forecast for the November 2019–January 2020 time period than in the October STEO
In the November STEO, EIA increased its U.S. benchmark West Texas Intermediate (WTI) crude oil price forecast by $2/bbl in November to $56/b and by $1/bbl in both December and January to $55/bbl and $54/bbl, respectively. The slight increase in crude oil prices also contributed to EIA’s increased production forecast for the first half of 2020 because of EIA’s assumption of a six-month lag between a crude oil price change and a production response.
In the November STEO, EIA now forecasts U.S. crude oil production will increase to 12.3 MMBPD in 2019 from 11.0 MMbpd in 2018. Production in the Permian region is the primary driver of EIA’s forecast crude oil production growth, and EIA forecasts Permian production will grow by 915,000 bpd in 2019 and by 809,000 bpd in 2020 (Figure 2). Increases in Permian production are supported by the crude oil pipeline infrastructure expansion seen earlier this year, which helped alleviate the transportation bottleneck and supported prices for WTI in Midland, Texas (the price producers may expect to receive in the Permian region), relative to prices for WTI-Cushing. The higher relative prices in the Permian should continue to encourage production in the region. EIA forecasts that the Bakken region will have the next largest crude oil production growth in 2019, and it is forecast to grow by 152,000 bpd in 2019 and 96,000 bpd in 2020. EIA forecasts that production in the Federal Offshore Gulf of Mexico will increase by 138,000 bpd in 2019 and 116,000 bpd in 2020.
Although EIA forecasts that overall U.S. crude oil production will increase, EIA expects the growth rate to decline from 11.8% in 2019 to 8.1% in 2020. One of the primary indicators of a slowdown in production growth is the decline in oil-directed rigs. According to Baker Hughes, active rig counts fell from 877 oil-directed rigs in the beginning of January 2019 to 674 rigs in mid-November. Rig counts in the Permian region also declined during this period, falling from 487 to 408 (Figure 3). Because EIA expects WTI-Cushing crude oil prices to stay below $55/b until August 2020, EIA anticipates that drilling rigs will continue to decline as producers cut back on their capital spending, resulting in notable slowing in the growth of domestic crude oil production over the next 14 months.
lthough U.S. rig counts are declining, improvements in rig efficiency, which allows fewer rigs to drill the same number of wells, partially offset declining rig counts. In addition, higher initial production from wells (although not necessarily the total estimated ultimate recovery) is offsetting some of the slowdown in rigs.