November 21, 2019
The U.S. Energy Information Administration (EIA) revises its U.S. crude oil production forecast in each monthly Short-Term Energy Outlook (STEO) 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 barrels per day (b/d) (0.2%) from the October STEO. EIA increased its 2020 crude oil production forecast by 119,000 b/d (0.9%) compared with the October STEO.
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 b/d for August, based on EIA’s most recent monthly crude oil production survey data
- A higher initial production forecast for future wells that will be drilled in the Texas Permian region through 2020
- A 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 per barrel (b) in November to $56/b and by $1/b in both December and January to $55/b and $54/b, 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.
With these changes, EIA now forecasts U.S. crude oil production will increase to 12.3 million b/d in 2019 from 11.0 million b/d in 2018. Output 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 b/d in 2019 and by 809,000 b/d in 2020.
Increases in Permian crude oil production in Texas and New Mexico are supported by crude oil pipeline infrastructure expansions that came online earlier this year. These expansions, which helped alleviate transportation bottlenecks and led to increased prices for WTI in Midland, Texas, (the price that producers may expect to receive in the Permian region) relative to prices for WTI-Cushing. The higher relative prices in the Permian region should continue to encourage crude oil production growth in the region.
EIA forecasts that the Bakken region in North Dakota will have the next largest crude oil production growth in 2019. EIA expects Bakken crude oil production will grow by 152,000 b/d in 2019 and 96,000 b/d in 2020. EIA forecasts that production in the Federal Offshore Gulf of Mexico will increase by 138,000 b/d in 2019 and 116,000 b/d in 2020.
Although EIA forecasts that overall U.S. crude oil production will continue to increase, EIA expects the growth rate will slow largely because of a 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, a 23% decline. Rig counts in the Permian region fell 15% during this period, from 487 to 408 rigs.
Because EIA expects WTI-Cushing crude oil prices to stay lower than $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.
Although U.S. rig counts are declining, improvements in rig efficiency, which allows fewer rigs to drill the same number of wells, partially offsets 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 rig counts.
Principal contributor: Matthew French