Some said it couldn’t be done. However, a new forecast from the US Energy Information Administration (EIA) puts the US on track to produce a record volume of crude oil in 2023.
In its latest short-term energy outlook, the EIA sees US oil production averaging 11.8 million B/D this year and 12.4 million B/D in 2023. That means by next year, the US would top the record average of 12.2 million B/D achieved in 2019.
“We expect global demand for petroleum products to return to and surpass pre-pandemic levels this year, but crude oil production grows at a faster rate in our forecasts,” Steve Nalley, acting EIA administrator, said in a statement. He added that with higher domestic output, the US should enjoy lower prices for gasoline and jet fuel.
A drop in price should also reflect growing crude storage inventories over this year and next, the EIA said.
US oil production hit a monthly high of 12.9 million B/D in the last 2 months of 2019, the same period that marks the beginning of the COVID-19 pandemic. After lockdowns slowed the global economy and crude prices slipped to historic depths amid a Saudi-Russia price war, US output in May 2020 was down by more than 3 million B/D from the highs seen just a few months prior.
The sharp falloff raised questions as to whether US producers would be able to make a comeback.
Skeptics included Vicki Hollub, CEO of Occidental Petroleum, who in October 2020 said filling the gap would prove “too difficult.” Speaking at an industry conference, Hollub added, “Over the next 3 to 4 years there’s going to be moderate restoration of production, but not at high growth.”
Hollub was not the only executive of a large US oil producer to cast doubts on a resurgence.
Scott Sheffield, CEO of Pioneer Natural Resources, issued a similar forecast in March 2021 when he said, “I see US production flattish this year at around 11 million B/D with very little growth in the future.”
Their comments came against a backdrop of investor disillusion in the US oil sector, which at the time was being hammered for failing to turn profits and create shareholder value.
Since then, the easing of lockdowns and the rollout of several COVID-19 vaccines have spurred global economic activity and energy demand.
By the second half of 2021, US oil and gas profits were soaring thanks to lower capital spending and rising crude prices. The EIA reported that operating cash flow for more than 50 publicly traded oil and gas companies topped $15 billion in June 2021 vs. $5 billion in the second quarter of 2020.
By the end of 2021, US producers were using 586 active onshore drilling rigs which represents a 67% increase year-over-year.
The number of hydraulic fracturing spreads has similarly climbed, reaching 244 crews in the first week of this month. That is 101 more than a year ago, according to market intelligence firm Primary Vision.
In terms of global crude demand, the EIA is somewhat bullish in the short term. It estimates that crude and liquid fuel demand averaged 96.9 million B/D in 2021, which represents a 5 million B/D increase from the year prior.
Global demand this year is expected to top 100 million B/D and exceed 102 million B/D in 2023. This falls in line with the thinking of many industry observers which have held that despite the global energy transition, peak oil demand remains as unlikely to materialize this decade.
Other highlights from the EIA’s short-term outlook
- Global oil production will increase by 5.5 million B/D this year, with 84% of the increased output coming from the US, OPEC members, and Russia.
- OPEC is anticipated to average 28.9 million B/D in 2023, up nearly 10% from the exporting group’s 2021 output.
- The price for Brent crude is predicted to drop from last year’s average of $79/bbl to $75/bbl this year and $68/bbl in 2023.
- In contrast, West Texas Intermediate is expected to increase from the 2021 average of $68.21/bbl to $71.32/bbl this year before making a substantial drop in 2023 to $63.50/bbl.
- By the second half of 2023, the EIA says US natural gas production may top 98.2 Bcf/D, representing an all-time high and enabling a record volume of liquified natural gas exports.
