As a result of expected OPEC production cuts, U.S. crude oil production could reach levels not seen since 1970. According to the EIA’s Short-Term Energy Outlook, domestic crude production could average 9.53 million barrels per day in 2018. That would be record crude production for the U.S. except for the 9.64 million barrels per day average seen in 1970.
In a recent Bloomberg article, Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said, “Shale operators are more bullish with crude trading above $50. I’m sure that from Riyadh to Caracas people in oil ministries are watching the U.S. rig count with avid interest and a bit of dismay.”
The Permian Basin is expected provide much of the increased production in 2018 now that cost reductions and new technology have lowered the breakeven points to $50 per barrel and below. The Wolfcamp Midland and Wolfcamp Delaware regions of the Permian have some of the best breakeven points of any shale basin in the U.S., averaging around $42 per barrel according to Wood Mackenzie.
Some of the highlights of the EIA’s Short-Term Energy Outlook were as follows:
U.S. crude oil production averaged an estimated 8.9 million b/d in 2016. U.S crude oil production is forecast to average 9.0 million b/d in 2017 and 9.5 million b/d in 2018.
Benchmark North Sea Brent crude oil spot prices averaged $55/barrel (b) in January, a $1/b increase from December. This price was $24/b higher than the January 2016 average, and it was the highest monthly average for Brent spot prices since July 2015.
EIA forecasts Brent crude oil prices to average $55/b in 2017 and $57/b in 2018. West Texas Intermediate (WTI) crude oil prices are forecast to average about $1/b less than Brent prices in 2017. The NYMEX contract values for April 2017 delivery traded during the five-day period ending February 2 suggest that a range from $45/b to $65/b encompasses the market expectation of WTI prices in April 2017 at the 95% confidence level.
U.S. regular gasoline retail prices are expected to decrease from an average of $2.35/gallon (gal) in January 2017 to an average of $2.27/gal in February and then rise to $2.33/gal in March. U.S. regular gasoline retail prices are forecast to average $2.39/gal in 2017 and $2.44/gal in 2018.
As oil prices continue to recover and oil demand continues to grow throughout the world, we will likely see a steady uptick in domestic production and an area to keep an eye on is the Permian Basin.
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