US crude output up in August for first time since March

US crude production rose in August for the first time since March, official data showed on Monday, dealing another blow to hopes that oversupply in the global oil market could be eased rapidly by a sharp decline in output from the shale reserves of North America.

The US government’s Energy Information Administration said the country produced 8.744m barrels of crude per day in August, 51,000 b/d more than in September. 

From its peak in April 2015, US production had fallen about 883,000 b/d by August, but its decline has been significantly slower than many forecasters expected after the oil price crash triggered a sharp slowdown in drilling activity. 

Some US oil exploration and production companies, including ConocoPhillips, Pioneer Natural Resources, Hess and Marathon Oil have low enough costs and strong enough cash flow to be able to drill enough new wells to increase production without tapping the capital markets for additional financing, according to a study published by Wood Mackenzie, the research group, last week. 

Chevron, the second-largest US oil company by market capitalisation, said on Friday that its production in the Permian basin shale oil region of west Texas was 24 per cent higher in the third quarter of this year than in the equivalent period of 2014, and was on course for strong growth to beyond the end of the decade. 

The strength of US crude production in August was entirely the result of growth in the federal waters of the Gulf of Mexico, where output rose 88,000 b/d, but shale and other onshore oilfields have also proved more resilient than seemed likely earlier in the year. 

Production in Texas, home to the Permian and Eagle Ford shale formations, has dropped only 12 per cent to 3.16m b/d from its peak of 3.6m b/d last year. In North Dakota, the other principal shale oil-producing state, production was 975,000 b/d in August, down 19 per cent from its peak. 

The EIA has shared in the overestimation of the pace of the decline in US production. The EIA’s most recent Short-Term Energy Outlook projected that US crude production would have been 8.34m b/d in August, about 400,000 b/d below its new estimate of the actual out-turn. 

The EIA has been steadily revising up its expectations for future US oil production. In March it predicted that US crude output would hit a low point of 7.95m b/d in September 2017, and then start to rebound. Its latest forecasts put the low point in August 2016, with slow growth thereafter until an acceleration in the last few months of 2017. Now it looks as though even that projection may have been too pessimistic. 

The number of rigs drilling for oil in the US has been rising steadily since May, and after falling from a peak of 1,609 in October 2014 to a low of 316 has now rebounded to 441, according to Baker Hughes data. 

Oil prices fell sharply on Monday, with Brent crude dropping 2.8 per cent to $48.32, as expectations grew that Opec member countries would be unable to implement the production cut that they agreed in Algiers in September.

The article US crude output up in August for first time since March was originally published at FT.com.