By Toril Bosoni, Head of Oil Industry and Markets Division

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This article was published by the US Energy Information Administration on Jan. 4, 2022.

Crude oil prices increased in 2021 as increasing COVID-19 vaccination rates, loosening pandemic-related restrictions, and a growing economy resulted in global petroleum demand rising faster than petroleum supply. The spot price of Brent crude oil, a global benchmark, started the year at $50 per barrel (b) and increased to a high of $86/b in late October before declining in the final weeks of the year.

Brent’s 2021 annual average of $71/b is the highest in the past three years. The price of West Texas Intermediate (WTI) crude oil traced a similar pattern to Brent and averaged $3/b less than Brent in 2021.

Global petroleum production increased more slowly than demand, driving higher prices. The slower increase in production was mostly attributable to OPEC+ crude oil production cuts that started in late 2020. OPEC and other countries, such as Russia, that coordinate production with OPEC (referred to as OPEC+) announced in December 2020 that they would continue to limit production increases throughout 2021 to support higher crude oil prices.

According to our December 2021 Short-Term Energy Outlook (STEO) estimates, U.S. crude oil production in 2021 decreased by 0.1 million barrels per day (b/d) from 2020 and by 1.1 million b/d from 2019. Cold weather in February and hurricanes in August contributed to this decrease, but it also was a result of the decline in investment among U.S. oil producers since mid-2020.

Increasing demand and lower supply of crude oil resulted in consistent global petroleum and liquid fuels inventory withdrawals from February through December and contributed to increasing crude oil prices. The largest inventory draw was in February, when Saudi Arabia imposed a cut of 1.0 million b/d on its production, and the United States experienced extremely cold weather that led to well freeze-offs and a 1.3 million b/d decline in crude oil production.

Withdrawals were also high in June, one month before OPEC+ announced it would begin increasing crude oil production each month. We estimated in our December 2021 STEO that petroleum inventories decreased by 469 million barrels globally in 2021—likely the largest annual inventory withdrawal since 2007.

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This article was published by the US Energy Information Administration on Mar. 2, 2020.

Annual US crude oil production reached another record level at 12.23 million barrels per day (b/d) in 2019, 1.24 million b/d, or 11 per cent more than 2018 levels.

The 2019 growth rate was down from a 17 per cent growth rate in 2018. In November 2019, monthly US crude oil production averaged 12.86 million b/d, the most monthly crude oil production in US history, according to the US Energy Information Administration’s (EIA) Petroleum Supply Monthly.

US crude oil production has increased significantly during the past 10 years, driven mainly by production from tight rock formations developed using horizontal drilling and hydraulic fracturing to extract hydrocarbons.

Texas continues to produce more crude oil than any other state or region of the United States, accounting for 41 per cent of the national total in 2019. Texas crude oil production averaged 5.07 million b/d in 2019 and reached a monthly record of 5.35 million b/d in December 2019.

Texas’s production increase of almost 660,000 b/d in 2019—driven by significant growth within the Permian region in western Texas—was 53 per cent of the total US increase for the year. Texas crude oil production has grown by 3.9 million b/d, or 333 per cent, since 2010.

Several other US states or regions set production records in 2019. In addition to contributing to Texas’s record production year, the Permian region drove a 248,000 b/d, or 36 per cent, crude oil production increase in New Mexico.

This increase was the second-largest state-level growth in 2019 and accounted for 20 per cent of the total US increase. In 2019, New Mexico set a new oil production record for the third consecutive year, growing by 749,000 b/d since 2010.

In the Offshore Federal Gulf of Mexico (the U.S. controlled waters in the Gulf of Mexico), new projects contributed to the region’s growth in production in 2019. Oil and natural gas producers brought online seven new projects in 2019, and EIA expects nine more will come online in 2020.

The Offshore Federal Gulf of Mexico’s crude oil production grew by 126,000 b/d in 2019, leading to the area’s highest annual average production of 1.88 million b/d. The Offshore Federal Gulf of Mexico was the second-largest crude oil producing region in the United States in 2019.

Colorado and North Dakota also set record production levels in 2019 of about 514,000 b/d and 1.4 million b/d, respectively. The Niobrara shale formation drove production increases in Colorado, and continued production in the Bakken region drove increases in North Dakota.

Production in Oklahoma increased by 32,000 b/d in 2019 but did not surpass Oklahoma’s record production of 613,000 b/d set in 1967.

Increases in these states and regions more than offset production declines elsewhere. Alaska’s crude oil production decreased for the second year in a row, and California’s production declined for the fifth year in a row.

In its latest Short-Term Energy Outlook, EIA forecasts US crude oil production will continue to increase in 2020 to an average of 13.2 million b/d and to 13.6 million b/d in 2021. Most of the expected production growth will occur in the Permian region of Texas and New Mexico.

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Saudi Arabia, Libya, Venezuela and Canada cut pack on liquid fuels production

By Matthew French

This article was published by the US Energy Information Administration on Feb. 28, 2019.

Despite relatively lower supply from a number of major crude oil-producing countries, including Saudi Arabia, Libya, Venezuela, and Canada, global liquid fuels production was forecast to exceed global consumption through 2020 in EIA’s February Short-Term Energy Outlook (STEO).

In the February 2019 update of its STEO, EIA forecasts that Brent crude oil prices will average $61 per barrel (b) in 2019 and $62/b in 2020. EIA forecasts that higher U.S. crude oil production growth and slightly lower global oil consumption will offset the short-term supply reductions. As a result, in the STEO forecast, global petroleum liquids stocks increase and prices remain relatively flat.

The agreement among members of the Organization of the Petroleum Exporting Countries (OPEC) and several non-OPEC countries (collectively OPEC+) to reduce production by 1.2 million barrels per day (b/d) began in January.

Global crude oil supply decreased because of additional production cuts by Saudi Arabia, beyond what it agreed to in the OPEC+ agreement. An increase in unplanned supply outages in Libya and U.S. sanctions on Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A. (PDVSA), have also affected OPEC output.

As a result, in the February STEO, 2019 OPEC production was revised down by nearly 150,000 b/d, and 2020 OPEC production was revised down by more than 400,000 b/d relative to the January forecast.

The Canadian province of Alberta also instituted its own production restraints, which EIA estimates contributed to a decline in Canada’s supply of about 420,000 b/d from December to January, adding further tightness to global oil supply.

The reductions in oil production from OPEC countries and Canada are likely contributing to increasing prices of medium and heavy crude oils compared with light crude oils.

These countries tend to produce medium and heavy grades of crude oil with higher sulphur content, so a large share of the global oil supply reductions in January has been of this quality. U.S. Gulf Coast refiners have significant capacity to process heavy, sour crude oils, although much of the crude oil production in the U.S. is lighter and sweeter.

Despite a relative tightening of heavy crude oil supply, EIA does not anticipate any significant decrease in U.S. refinery runs. U.S. imports of Venezuelan crude oil have been falling for several years, and refineries have been replacing Venezuelan crude oil with other heavy crude oils. Refineries may choose to run lighter crude oils if transportation constraints limit the availability of heavy crude oils.

The February STEO forecast for U.S. crude oil production was revised higher by about 340,000 b/d in both 2019 and 2020 compared with the January STEO, mostly because of increased production in the U.S. Gulf of Mexico and the Permian Region. Historical production data in the Gulf of Mexico for November 2018 was higher than previously forecast and set a record high production level of 1.9 million b/d.

Forecast crude oil production from the Permian Region of western Texas and eastern New Mexico was revised up in the February STEO based on higher-than-anticipated production and a tightening of the price spread between Midland, Texas, and Cushing, Oklahoma.

For most of 2018, the price for West Texas Intermediate at Midland (representative of Permian Region crude oil prices) traded lower than crude oil priced in Cushing, Oklahoma, a major storage and trading hub for crude oil. This price difference decreased at the end of 2018, and EIA’s expectation of higher relative prices in Midland contribute to increased U.S. production later in the STEO forecast.

Although recent economic data from the United States has been positive, EIA’s forecast for global oil-weighted GDP growth, based on data from Oxford Economics, was revised down slightly from the January STEO.

This revision, along with revisions to past consumption estimates that carried through to the forecast, contributed to a slight downward revision in the global oil consumption forecast. Because of these changes to global supply and demand, EIA expects global petroleum stocks will build through 2019 and 2020 at a rate of 440,000 b/d and 630,000 b/d, respectively.

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OPEC production down by 890,000 b/d

A survey by Reuters shows that OPEC production is down by 890,000 barrels per day (b/d), the largest monthly decline posted by the cartel since January 2017.  The decline is due to the cartel’s supply cut agreement which came into effect at the beginning of January.

The survey tracked supply to the market and shipping data and information from the new agency’s sources at oil companies were factored in to the findings.  Reuters determined that OPEC production in January hit 30.98 million b/d.

Saudi Arabia along with other Gulf Allies decreased their output by more than pledged this month.  As well, production cuts from OPEC countries excluded from the agreement, Libya, Iran and Venezuela, also contributed to the larger-than-expected decrease.

Libyan port closures due to poor weather along with security incidents at Sharara, the African country’s largest oilfield have impacted Libya’s crude output.  Venezuela is suffering through a social and economic crisis that has seen the millions flee the country and struggling oil production continue to fall.  US sanctions on Iranian crude exports have resulted in falling production for the Middle Eastern country.

According to the survey, Eleven OPEC members participating in the agreement reached 70 per cent of the pledged cuts.

In December, OPEC along with Russia and other allies, agreed to cut 1.2 million b/d from the markets for the first six months of 2019.  OPEC had pledged to cut 812,000 b/d and Russia pledged to reduce its production by 230,000 b/d.  Other non-cartel producers pledged to cut their output by 383,000 b/d.

Saudi Arabia’s Energy Minister Khalid al-Falih said earlier in the week that the kingdom would over deliver on its pledges for the full six months of the agreement.  This month, the Saudi’s produced about 10.2 million b/d and next month are expected to see production decline to 10.1 million b/d, according to Falih.

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OPEC production down by 460,000 b/d in December

A survey by Reuters showed OPEC production fell last month by the largest amount in nearly two years.  According to the news agency, Saudi Arabia, UAE, Iran and Libya all posted crude production declines in December amounting to 460,000 barrels per day.

OPEC production slid to 32.68 million b/d, the lowest since January 2017.

The production cuts came one month before OPEC and its OPEC+ allies were to officially begin another round supply limits agreed upon by participants in early December.  The formal accord between OPEC and other participants, including Russia, took effect on Tuesday and will result in cuts of 1.2 million b/d.

The cartel called for the production cuts after oil prices fell from a four-year high in October of $86/barrel to $56/barrel in December.

More OPEC production cuts have not been ruled out, but officials are hoping oil prices will be supported by the agreed-upon cuts.

“Naturally, it will adjust from now on,” an OPEC delegate told Reuters, referring to the downward trend in production. “I hope the market will recover soon.”

The survey showed the biggest drop in OPEC production came from the Saudis who cut their output by 400,000 b/d.  The decline comes one month after Saudi Arabia posted a record-high production result of 11 million b/d.

The kingdom along with Russia boosted their production after US President Donald Trump demanded more crude be pumped to curtail oil price increases.

The Trump administration sanctioned Iranian crude, which resulted in rising oil prices.  But waivers from Washington for some of Iran’s biggest customers along with increased production from major producers and growing concerns over a slowing global economy have tanked oil prices.

Reuters reports that Saudi Arabia may cut even more of its production this month.  The United Arab Emirates also cut back its production according to the survey.  Libya posted the third largest decline after unrest closed the north African nation’s biggest oil field.

Iran’s crude output also fell in December due to US sanctions.  However, Reuters reports that Iran has maintained its exports, mostly due to sanctions waivers as well as determined efforts by Tehran to keep selling its crude.

Iraq bucked the trend and posted production increases after the restart of Kirkuk oil exports and a rebound in exports from southern terminals.  Kuwait and Nigeria also reported increased crude production.

By 3:26 p.m., EST, benchmark Brent crude prices were up 89 cents to $55.80/barrel and US West Texas Intermediate crude prices had risen 42 cents to $46.96/barrel.

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OPEC supply deal under pressure from Trump

Reuters reports that OPEC and Russia are moving closer to an oil supply deal to help stabilize oil prices, despite pressure from US President Donald Trump to cut oil prices.

The cartel is meeting in Vienna on Thursday and Friday.  Also on Friday, OPEC will meet with allies, including Russia, to discuss the need for oil production cuts beginning in January.

So far, Russia has been cool to such an agreement, but Oman’s Oil Minister Mohammed bin Hamad Al-Rumhy told reporters “all of us, including Russia agreed there is a need for a reduction”.

The comments came after a ministerial committee meeting attended by Saudi Arabia, Russia and other producers on Wednesday.

Al-Rumhy said exact volumes are still under discussion and the cuts would take September or October 2018 as baseline figures.  The oil supply deal is expected to last from January to June.

Russia’s Energy Minister Alexander Novak is reportedly seeking a final agreement from President Vladimir Putin, according to two Reuters’ sources.

Saudi Arabia is looking for OPEC and other participants to agree to a cut of at least 1.3 million barrels per day (b/d), or 1.3 per cent of global crude production.

As part of the agreement, the kingdom is hoping Russia will agree to reduce its output by at least 250,000 to 300,000 b/d.  However, OPEC and non-OPEC sources say Moscow is insisting the amount should be half of that.

Russia’s TASS news agency reported an OPEC source said the cartel and its allies were discussing the possibility of reverting to production quotas agreed to in 2016.  These cuts amounted to 1.8 million b/d and many participants decreased their production by more than originally pledged.

The agreement is facing opposition from US President Donald Trump who has been calling for higher production to ward off rising oil prices caused by his administration’s sanctions on Iranian crude exports.

The October killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul could complicate any OPEC decision.  While Trump has backed Saudi Crown Prince Mohammed bin Salman, many US politicians are calling for stiff sanctions on Riyadh.

“How can the Saudis cut substantially if Trump doesn’t want a big cut?” Gary Ross, chief executive of U.S.-based Black Gold Investors and a veteran OPEC watcher told Reuters.

“Trump is worried about the Fed and inflation. So he wants low prices now. Also if Saudis are obnoxious with a deep output cut, it will spur the Democrats in Congress to go more actively for the Nopec legislation and the withdrawal of US support for the Saudi-backed forces in the war in Yemen,” Ross said.

Nopec legislation, under discussion by US lawmakers, could make it possible to sue Saudi Arabia and other cartel members for price fixing.

Bob McNally, president of Rapidan Energy Group, told Reuters that OPEC is stuck between a rock and a hard place with pressure from Trump on one side and the need for higher revenues on the other.

“We think OPEC will try to come up with a fuzzy production cut … It won’t be called a cut but will effectively mean a cut, which will also be difficult to quantify,” McNally said.

Since October, oil prices have fallen by almost one-third and by 2:37 p.m., EST, Brent crude was sitting at $61.92/barrel.  Prices rose after the Saudis boosted their production to compensate for Iranian crude exports.

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Shale plays accounted for 4.4 billion of extra US oil reserves

By John Kemp

LONDON, Dec 5 – US oil reserves hit record levels at the end of 2017, as annual reserve additions outstripped production for the eighth time in nine years, government data published last week shows.

Reserve growth is the main reason predictions about future oil shortages have been repeatedly proved wrong.

US policymakers have long fretted about the damage to the economy and national security of exhausting domestic oil reserves (“Oil scarcity ideology in U.S. national security policy”, Stern, 2012).

As early as 1909, the US Geological Survey was predicting reserves might be exhausted by 1935 (“Petroleum resources of the United States – Report of the National Conservation Commission”, GPO, 1909).

Scarcity concerns became prominent again in the 1940s, the 1970/80s and the 2000s (“Market madness: a century of oil panics, crises and crashes”, Clayton, 2015).

Policymakers responded by pressing for more conservation, encouraging the development of overseas reserves, reserving domestic supplies for future military needs, or experimenting with alternatives.

But scarcity forecasts have underestimated the impact of improvements in technology, mostly driven by price changes, of which shale extraction has been the most recent and dramatic.

And we will have cooked the planet through global warming long before we run out of fossil fuels.

“No mineral, including oil, will ever be exhausted,” wrote the late Morris Adelman, an economist at the Massachusetts Institute of Technology (“Genie out of the bottle”, 1995).

“If and when the cost of finding and extraction goes above the price consumers are willing to pay, the industry will begin to disappear.”

And as former Saudi oil minister Zaki Yamani observed in 2000:

“Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.”

The oil age, too, will end, if and when it is replaced by a superior energy source – just as mainframe computers, buggy whips and typewriters have all been largely superseded. But it won’t end for lack of oil.

Reserve growth

Proved oil reserves increased by 6.4 billion barrels (19.5 per cent) in 2017 compared with the previous year, according to the US Energy Information Administration (“US crude oil and natural gas proved reserves”, EIA, Nov. 29).

These are estimated volumes of oil that analysis of geologic and engineering data demonstrates with reasonable certainty are recoverable under existing economic and operating conditions.

Estimates change in response to new field discoveries, greater understanding of existing fields, technology and changes in prices and costs, as well as the amount produced.

US reserves in 2017 amounted to 39 billion barrels of oil, surpassing the previous peak set in 1970, and enough to sustain production at current rates for 11 years, even if no new reserves are added.

Texas accounted for half the total increase (+3.3 billion barrels) followed by New Mexico (+1.0 billion), Alaska (+0.4 billion), Colorado (+0.3 billion), California (+0.3 billion) and North Dakota (+0.2 billion).

Tight oil or shale plays accounted for 4.4 billion of extra reserves, with the Permian Basin in western Texas and eastern New Mexico (+3.4 billion) and Eagle Ford in Texas (+0.7 billion barrels) accounting for the lion’s share.

Producers also added almost 0.8 billion barrels of additional proved reserves in the US section of the Gulf of Mexico.

US oil producers added 5.7 billion barrels to their proved reserves last year as a result of new field discoveries and extensions of reserves within existing fields, the EIA says.

They also added another 2.7 billion barrels as a result of changed estimates of what they can produce using existing technology and at current prices and costs, with other adjustments adding 1.8 billion barrels.

Reserve additions from all these sources combined comfortably outstripped the 3.4 billion barrels of oil that were actually produced during the year.

Capital investment

“Nobody finds a reserve, just as nobody finds a factory,” according to Adelman.

Oil reserves are not gifts of nature, they represent the outcome of improvements in technology and heavy investment in exploration and production.

“Reserves are renewable and constantly renewed if – and only if – there is enough inducement to invest in creating them. The inducement depends on price and cost,” Adelman wrote.

Proved reserves have risen and fallen broadly in line with contemporary production as both have responded to the same price signals.

The ratio of proved reserves to contemporary production has been broadly stable at between 9 and 12 years since at least the late 1940s.

Most reserve additions have come from within existing fields as drilling leads to better understanding of the extent of the resource, new oil-bearing strata are discovered, and recovery techniques improve.

For example, California’s Kern River oilfield was thought to contain just 54 million more barrels of oil in 1942, but actually produced 736 million more by 1986 and was then estimated to have another 970 million remaining.

“The field had not changed, but knowledge had: science, technology, and, not least, the detailed geology learned by development”, Adelman wrote.

“At any given moment, reserves are being added everywhere … The reserve increments of any given period are overwhelmingly in existing fields,” he explained.

“The constant search for least-cost prospects takes the industry to the fringes of known reservoirs and beyond. The search process is driven by cost comparison.

“The industry is a great sensing-selection instrument, scanning all deposits, old and new, to develop the cheapest increment or tranche into a reserve.”

In this respect, shale has been no different from earlier technological breakthroughs that have led to enormous reserve growth, mostly within existing fields and plays.

John Kemp is a Reuters market analyst. The views expressed are his own.

(Editing by Alexander Smith)

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Saudi crude shipments cut in response to lower seasonal demand

Saudi Arabia says it will cut its exports of oil by 500,000 barrels per day (b/d) next month, according to the kingdom’s energy minister.

Khalid al-Falih told reporters on Sunday that the Saudi crude shipments cuts are in response to lower seasonal demand.  The cut amounts to reductions of about 0.5 per cent of the global supply of crude.

The cuts come after the Saudis boosted their production in response to pressure from US President Donald Trump to balance the market and avoid oil price spikes expected to occur after the Trump administration put in place sanctions on Iranian crude.

“The highly anticipated Iranian sanctions were formally announced last Monday,” Drillinginfo noted in its weekly research note.

“However, waivers for China, India, Japan, Italy, Greece, Turkey, South Korea and Taiwan allow these countries to purchase Iranian crude for the next six months. This brought additional declines rather than gains.”

Last week oil prices fell below $70/barrel from a high of $85/barrel in October.

“We have been increasing production in response to demand,” Falih said when speaking with reporters in Abu Dhabi prior to a joint OPEC, non-OPEC market monitoring committee meeting.

Kazakhstan’s deputy energy minister Magzum Mirzagaliyev told Reuters that he believes the Saudis are suggesting using August-October output levels as a baseline to determine cuts.

Meanwhile, Falih says he would prefer to “move into 2019 with minimum interventions,” however, he did not rule out the possibility of a cut in production next year.

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US crude output expected to average 12.06 million b/d in 2019

The US Energy Information Administration forecasts US crude output to hit 12.06 million barrels per day (b/d) by mid-2019, mostly due to surging shale production.

On Tuesday, the agency released its monthly report which predicts US production to increase by 1.16 million b/d, higher than the previous forecast for an increase of 1.02 million b/d.

The rise in output over 12 million b/d is expected to occur in the second quarter of next year, sooner than the agency’s previous estimate of fourth quarter, 2019.

This year, output is expected to increase by 1.55 million b/d to 10.90 million b/d, up from an earlier estimate of an increase of 1.39 million b/d.

The US shale revolution has boosted crude production to record highs.

In recent months, pipeline bottlenecks have stranded some crude in the Permian Basin, but “industry efficiencies in pipeline utilization and increased trucking and rail transport in the region have allowed crude oil production to continue to grow at a higher rate than EIA expected,” the EIA wrote in its report.

The Bakken has also reported new record outputs.

EIA Administrator Linda Cauano said “US crude oil production reached a record milestone in August 2018, when it exceeded 11 million barrels per day for the first time”.

“US production has exceeded EIA’s previous expectations and, as a result, the short-term outlook now forecasts US crude oil production to exceed 12 million barrels per day in 2019.”

On the demand side, in 2018, the EIA predicts US crude demand to increase by 510,000 b/d to 20.47 million b/d.  This is slightly higher than its previous forecast of an increase in demand of 450,000 b/d to 20.41 million b/d.

By 2019, the agency predicts US crude oil demand to increase by 220,000 b/d, a slight downward revision from its previous estimate of an increase of 230,000 b/d.

Trade tensions between the US and China and currency weaknesses pressuring economies in Asia have caused concern about the global crude demand outlook.

On Tuesday, oil prices fell by 1.5 per cent and, at one point in the session, dropped to their lowest point since early April.

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