Growth in U.S. Oil and Gas Output Slows Down

• U.S. crude oil production stayed the same for the eleventh week in a row.
• Crude production has averaged 13.1 million bpd over the last eleven weeks, down from an all-time high of 13.3 million bpd.
• As a result, growth from the Lower 48 basins was no more than 500,000 bpd in March 2024 from the same month last year.

Oil and gas production in the United States hit record highs at the end of 2023 but has since trended lower, and the growth in output has slowed year-over-year.

U.S. companies have slowed production growth rates as oil prices stabilized at lower levels last year compared to the 2022 highs, and U.S. natural gas prices saw a slump to multi-decade lows early this year.  

This year's increase in shale and overall U.S. crude production will be much lower than in the past two years, analysts and forecasters say.

The decline in oil and gas prices compared to the spikes seen in 2022, the ongoing merger wave in the U.S. shale industry, and the focus on shareholder returns—instead of production growth—have all combined to drag output growth lower in recent months. 

The total number of active drilling rigs for oil and gas in the United States saw no change in the last week of May, according to data from Baker Hughes. The total rig count stayed the same at 600, compared to 696 rigs this same time last year.

Meanwhile, U.S. crude oil production stayed the same for the eleventh week in a row at an average of 13.1 million barrels per day (bpd) for the week ending May 24—down by 200,000 bpd from the all-time high of 13.3 million bpd.

Moreover, Primary Vision's Frac Spread Count, an estimate of the number of crews completing wells that are unfinished, fell by 6 in the week ending May 24, to 257.

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As a result, growth from the Lower 48 basins was no more than 500,000 bpd in March 2024 from the same month last year, per EIA data cited by Reuters columnist John Kemp. This compares to yearly growth of up to 1 million bpd in the second half of 2023.

In other words, U.S. oil production is growing, but at a much slower pace than in 2022 and 2023.

Amid the ongoing consolidation in the American oil and gas industry, producers have become bigger and are focusing on shareholder returns. They wouldn't be inclined to respond to every price spike with a major boost in drilling that ultimately floods the market with oil and depresses prices.

As the U.S. industry matured and balance sheets and market valuations strengthened after the record-high earnings of 2022, a wave of consolidation began towards the end of 2023.

The big companies are looking to become bigger by adding premier assets of the takeover targets to their portfolios. And the key driver of the industry now is returning more to shareholders and preparing for inventory stacked up for years of production ahead without the need to grow organically by investing too much cash flow into the drilling of new locations and wells.

U.S. natural gas production is also off the recent record highs as major producers have curtailed some output in the spring in response to the natural gas price slump earlier this year, which saw prices tumble to a three-decade low.

America's oil production growth may be slowing, but it will still be leading global supply growth from non-OPEC+ producers, according to OPEC's latest estimates.

This year, liquids supply growth from non-OPEC+ is expected at 1.2 million bpd, pushed up by rising output in the U.S., Canada, Brazil, and Norway, OPEC said in its latest Monthly Oil Market Report in May.

Last year, U.S. shale oil production rose by 600,000 bpd, mainly from the Permian, supported by improvements in drilling and completion. This year, U.S. crude oil and condensate production is anticipated to grow by half that volume, 300,000 bpd, per OPEC's forecasts.   

"Shale firms acknowledged that higher costs and falling prices forced some of them to cut back drilling and completion activities, especially during the first half of last year. However, improvements in well productivity, rig performance, and operational efficiencies supported strong production levels throughout the year, leading to the growth of 2.4 mb/d, y-o-y, in December 2023 over December 2022," OPEC said.

Slower U.S. shale growth in 2024 could make OPEC's oil market and price management efforts easier over the next two years.

By Tsvetana Paraskova for Oilprice.com

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