The U.S. crude oil production juggernaut continues to move forward. In 2018, U.S. production increased 17 percent over the previous year in a dynamic that is impacting both geopolitics as well as setting a new course for American global diplomacy.
Annual U.S. crude oil production reached a record level of 10.96 million barrels per day (b/d) in 2018, 1.6 million b/d higher than 2017 levels. In December 2018, monthly U.S. crude oil production reached 11.96 million b/d, the highest monthly level of crude oil production in U.S. history, the EIA said on Tuesday. Moreover, U.S. crude oil production has increased significantly over the past 10 years, driven mainly by production from tight rock formations using horizontal drilling and hydraulic fracturing, hence the U.S. shale oil revolution. The EIA now projects that U.S. crude oil production will continue to grow this year and in 2020, averaging 12.3 million b/d and 13.0 million b/d, respectively.
Lone Star state leads the pack
Not surprisingly, Texas is still leading U.S. production, similar to the lead it took up to the 1970s when the state was largely responsible for allowing the U.S. to play the then-role of global oil markets swing producer before ceding that role to a Saudi Arabia-led OPEC for the next four decades. Texas accounted for 40 percent of the national total oil production last year. The state has held the top position in nearly every year since 1970, the EIA added, with the brief exception of 1988, when Alaska produced more crude oil than Texas, and from 1999 through 2011, when production from the Federal Offshore Gulf of Mexico region was higher. Related: Is This The End Of The OPEC Deal?
Crude oil production in Texas averaged 4.4 million b/d in 2018 and reached a record-high monthly production level of 4.9 million b/d in December. Texas’s 2018 annual production increased almost 950,000 b/d. This growth has been largely driven by output in the Permian region in west Texas. For its part, Permian production represented nearly 60 percent of the total increase in overall U.S. oil output last year.
Oil production increases in the Permian region, which spans parts of Texas and New Mexico, also drove a 215,000 b/d, or 45 percent production increase in New Mexico in 2018. This level was the second-largest state-level growth in 2018 and accounted for 13 percent of the total U.S. increase, setting a new annual record production level in New Mexico.
The EIA in its most recent Short Term Energy Outlook said yesterday that U.S. crude oil production averaged 12.1 million barrels per day (b/d) in March this year, up 0.3 million b/d from the February average. EIA also forecasts that U.S. crude oil production will average 12.4 million b/d in 2019 and 13.1 million b/d in 2020, with most of the growth coming from the Permian region of Texas and New Mexico.
Gathering oil markets headwinds
U.S. oil production for its part, is the main factor, along with global economic growth concerns, that is keeping global oil prices from spiking even higher than they have so far this year. Both global oil benchmark, London-traded Brent and U.S. benchmark, NYMEX-traded West Texas Intermediate (WTI) futures are hitting highs amid growing geopolitical turmoil as well as Saudi Arabia and the OPEC+ group of producers continuing to trim oil output in an effort to reduce global supplies further and keep upward pressure on prices. Oil prices hit a five-month high on Monday, with WTI surging above $64 per barrel and Brent topping $71 per barrel.
Stellar U.S. production is acting as a counterweight on the supply side of the global oil markets equation, offsetting, at least to a degree, geopolitical problems and more output reductions in Libya as that country is embroiled in fighting around Tripoli, as well as U.S. sanctions against Iran and Venezuela. Without strong U.S. oil production, prices would likely have maxed out north of $100/barrel by now, similar to 2008 when prices hit a record high above $140/barrel. Related: Shale Jobs In Jeopardy Despite Oil Price Rally
No win situation for Trump
On Monday, the Trump administration, in a move that pleased Saudi Arabia, labeled the Iranian Revolutionary Guards as a terror group, further increasing tensions between Washington and Tehran. "This unprecedented step, led by the Department of State, recognizes the reality that Iran is not only a State Sponsor of Terrorism, but that the IRGC actively participates in, finances, and promotes terrorism as a tool of statecraft,” President Trump declared in a statement. “The IRGC is the Iranian government’s primary means of directing and implementing its global terrorist campaign." On Tuesday, Iran responded in kind. Iranian President Hassan Rouhani denounced the U.S. as the actual “head of global terrorism,” while labeling U.S. forces in the Middle East as a terror group.
What now remains to be seen for global oil markets is whether Trump will extend waivers for customers of Iranian oil. The president, however, has put himself in a no-win situation. If he grants more waivers as he did last fall, he will continue to create problems in his once cozy relations with Saudi Arabia, who was taken back last year when he granted the first set of waivers. However, in doing so he will add more barrels to global oil supply and help keep a lid on prices. If the president removes waivers for Iranian oil, then more barrels will be removed from global oil markets, with the knock-on effect of increasing both oil prices and gasoline prices at home just as the 2020 presidential election cycle kicks in.
By Tim Daiss for Oilprice.com
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