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Robert Rapier

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The U.S. Oil Supply Is Still Out Of Balance

  • The COVID-19 pandemic sparked a chain reaction in energy markets that is still being felt. 
  • The oil price crash forced many producers into bankruptcy, resulting in the largest short-term oil production drop in history.

You may find it curious that the price of oil is still above $80 a barrel. This is also why gasoline prices are at the highest levels since 2014. But, there is a good explanation for it. In January 2020, just before the Covid-19 pandemic began to sweep across the U.S., domestic oil production was 12.8 million barrels per day (BPD). Production remained at that level for a couple of months despite the double-whammy of a price war between Saudi Arabia and Russia, and growing demand destruction as a result of the Covid-19 pandemic.

But the situation was untenable. The price of oil eventually fell to zero and then kept going. That forced some producers into bankruptcy, resulting in the largest short-term oil production drop in U.S. history.

Production declined all the way to 9.7 million BPD in May 2020 (which was the month after oil prices went negative), but has since bounced back to 11.3 million BPD.

Meanwhile, U.S. oil demand has jumped back above 21.8 million BPD, which is where it was prior to the Covid-induced plunge. This loss of supply and recovery of demand is the biggest reason we have $80/bbl oil today when it was only $60/bbl just before the pandemic.

Related: Aramco CEO: Underinvestment In Oil Is A ‘’Huge Concern’’

The loss of supply has caused the U.S. to lose its briefly-held status as a net exporter of petroleum and petroleum products. That number had trended down from a high of 13 million BPD of imports in 2005 all the way to over a million BPD of exports in 2020. Now we have returned to net importer status, most recently importing a net average of 1.3 million BPD over the past four weeks.

But there are some signs that help may be on the way. In January 2020 there were nearly 700 rigs drilling for oil in the U.S. By the summer of 2020, that number had fallen below 200. The rig count has steadily recovered over the past year to reach 445 — the highest level since the pandemic started.

The downside is that it can take months at a minimum for new drilling activity to turn into oil production. So don’t rush out and buy that gas guzzler just yet.

By Robert Rapier


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  • Kay Uwe Boehm on October 31 2021 said:
    Energy transation was originally from A. Merkel turning off all nuclear power in FRG short after Fukushima desaster not for reducing CO2 later also from A. Merkel spread in world first to Bush Junior not B. Obama in USA but with only +2ppm/a no real danger 2070 only +100ppm +0.5°C minus sulfates cooling long after fossil energy peak even oil reserves saudi arabia out if production always again increased and coal reserves are low in china and indonesia also to be substituded later also gas.

    Venezuela highest reserves not real just sulfide rich tar in jungle.

    USA own oil & gas production in pig cycle from low price before and from energy transition block of fracking etc. for solar & wind hurricane & tornado destroyable.

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