Domestic crude oil production in 2020 dropped 8% from the prior year in response to the demand hits caused by the coronavirus pandemic, the U.S. Energy Information Administration (EIA) said Tuesday. A record hurricane season further complicated matters.
The 935,000 b/d decline to an average 11.3 million b/d last year marked the steepest annual decrease in U.S. production on record, EIA said. U.S. oil production had reached a record annual level in 2019.
Business lockdowns and travel restrictions in response to the pandemic’s onset last spring pummeled demand for fuels derived from oil, forcing producers to scale back output. West Texas Intermediate (WTI), the U.S. benchmark, traded at negative prices on April 20, 2020, EIA noted, the first time that happened since trading began in 1983. The following day, Brent crude oil, the global benchmark, dropped to $9.12/bbl, its lowest level in decades.
Between March 13 and May 8 of last year, based on a four-week rolling average, U.S. weekly gross refinery inputs fell 20% to 13.1 million b/d, EIA said. “That level was the lowest volume of crude oil processed in the United States since the week ending Sept. 26, 2008, after hurricanes Gustav and Ike disrupted refineries along the U.S. Gulf Coast,” researchers said.
U.S. crude production reached a peak of 12.8 million b/d in January 2020. By March 2020, as the pandemic spread in the United States, operators shut in wells and dramatically scaled back the number of wells brought online, lowering output across major producing regions. Oil production reached its lowest average monthly volume for the year at 10.0 million b/d in May, EIA said.
U.S. annual natural gas production in 2020 also declined, dipping 1% year/year and averaged 111.2 billion Bcf/d, a reflection of the pullback in drilling activity amid the pandemic.
Crude production in Texas averaged 4.87 million b/d in 2020, the agency said, a 4% decline from the record high of 5.07 million b/d set in 2019. Still, more oil was produced last year in Texas than in any other state. It accounted for 43% of the national total, researchers said.
The greatest crude production decrease last year developed in the federal waters of the Gulf of Mexico, where production dropped by 245,000 b/d year/year to an annual average of 1.65 million b/d in 2020, according to EIA. In addition to the pandemic, a record 2020 hurricane season on multiple occasions disrupted production.
While U.S. production is gradually returning, analysts expect a slow build-up over the course of this year and next. Oil prices have rallied this year, and Brent has touched $70/bbl this month, but more so because of ongoing output limits imposed by the Organization of the Petroleum Exporting Countries and its allies, aka OPEC-plus.
OPEC-plus leader Saudi Arabia said it cut production by 1.0 million b/d in both February and March. Last week, it said it would extend the cuts through April. Most other members of the cartel agreed to keep output flat through next month.
Assuming coronavirus vaccines succeed this year and travel demand recovers, “the Saudi-led decision to hold back more oil production will yield an extraordinarily tight oil market with stock draws perhaps accelerating,” Rystad Energy oil analyst Louise Dickson said. “Even though North American production can pick up due to the price levels, there isn’t a roaring U.S. shale industry to respond to OPEC-plus and balance out global supply.”
Dickson does not anticipate U.S. oil production to return to pre-pandemic levels until the end of 2023, a “prolonged recovery driven by capital discipline from shale drillers,” Dickson added, noting the demand picture remains fragile with “twists and turns” still likely until the pandemic ends.
In its latest Weekly Petroleum Status Report, EIA said U.S. crude oil production increased during the week ended Feb. 26 but remained well below pre-pandemic levels. Production averaged 10.0 million b/d, an increase of 300,000 b/d from the prior week but 3.1 million b/d lower year/year.
EIA has forecast that domestic crude production would hover around 11.3 million b/d at the end of 2021.
While too early to predict its own growth because of Saudi Arabia’s production cuts, OPEC recently estimated supply would expand by 700,000 b/d this year among countries outside of the cartel and its allies and average 63.3 million b/d.The International Energy Agency, in its February outlook, estimated that total supply outside of OPEC-plus would rise by 830,000 b/d in 2021.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 2158-8023 |