On September 30th, the U.S. government agency The Energy Information Administration (EIA) announced provisional U.S. crude oil production figures for July 2013. Key points:
- July crude oil production was 232.1 million barrels, equivalent to 7.7 million barrels per day (bpd)
- Change over July 2012 on a barrel-per-day basis: +17.3% y/y
- July total crude oil plus natural gas liquids reached 311.1 million barrels, equivalent to 10.4 bpd
As can be seen from the chart below (click for larger image, link to original data here), the fracking of tight oil formations in the U.S. has made a major impact on U.S. crude production over the last few years. The critical question is whether the current large year-on-year percentage growth rates in oil production can be sustained.
Growth rates for both crude oil production by itself and crude plus natural gas liquids remain robust, continuing to track in the high teens. The situation for oil is in marked contrast to that of U.S. natural gas, where production growth has stopped.
The differentiator here is price. Both tight gas and tight oil are expensive to produce compared with the conventional alternatives. Accordingly, production investment requires a high product price to remain feasible. U.S. natural gas prices are down roughly by half from their average level in the 2005 to 2008 period (removing the temporary 2008 spike). By contrast, the price of West Texas Intermediate, the U.S. benchmark oil price, remains near all-time highs (again excluding the very short-term 2008 spike).
Given crude oil is a globally traded commodity, U.S. production numbers need to be placed in the context of world supply and demand. In its latest Oil Market Report dated 12 September 2013, the International Energy Agency (IEA) recorded global ‘all liquids’ production of 91.6 million bpd for August 2013, down 0.8 million pbd from the previous month.
Full quarterly IEA world supply-and-demand figures, including Q2 2013 estimates, can be found here. The preliminary estimate for Q2 2013, shows a 0.5% rise over Q2 2012. The lacklustre increase in supply accounts for why world oil prices remain strong despite a slowdown in global GDP growth.
Geopolitical instability remains a major obstacle on the supply side, with Libya the latest country to show a steep fall in output against the background of labour disputes and civil unrest. Increasing sectarian strife is also putting a question mark over Iraq’s ability to hit ambitious production growth targets.