Brent Crude continues to climb above the $40 a barrel mark as the OPEC+ team and U.S. companies cut back on production while consumption is increasing.
U.S. oil production is likely to fall by 50 percent over the next 12 months, according to an 18 June analysis published by Oilprice.com.
The number of oil and gas drilling rigs in the U.S. fell to 165 in June, rivaling the lowest number in 20 years, and will continue to fall through the summer, the report predicted.
Part of the reason for the sharp drop-off in U.S. production is that shale wells account for most of the country’s oil output. Shale wells’ oil flow drops by an average of 27 percent per year. Therefore, 500 to 600 rigs need to be working full-time to replace that annual production decline, the Oilprice report calculated.
The time needed to contract for a drilling rig, move it into place, rig it up, drill a well, and get it ready to produce takes as long as 12 months, especially for shale wells that have dominated U.S. oil production for the last decade.
With a slow economic recovery and a lingering surplus of crude, there is little appetite or capital among oil companies to undertake new projects, especially risky exploration for new reserves.
The near-record low rig count and long lead times to a well’s production “mean that production declines cannot be expected to reverse until well into 2021,” the report said, but even that time frame is optimistic “because of constrained budgets and low oil prices.”
The study forecasts that U.S. oil production will rebound to no more than about eight million barrels a day by mid-2021, about one-third less than its November 2019 peak.
“Assuming there was infinite capital available to add rigs and drill wells, it would take several years to increase rig count to levels needed to maintain 2019 output levels,” the study concluded.
TREND FORECAST: Minus a wild card event, such as wars, or fears of them, in the Middle East, we forecast weak global economic growth will have Brent crude trading in a $50 per barrel range.
Should war(s) break out in the Middle East and prices escalate beyond $80 per barrel, it will devastate the already sinking global economy.
