Slowing U.S. shale revolution reduces crude output growth

The United States became the world’s biggest oil producer last year, thanks to the decade-long shale revolution centered in Texas. However, well productivity in Texas’s Permian basin, the country’s largest oil field, is falling and the number of drilling rigs operating in the U.S. has declined.

The volume of crude being pumped out of Texas recently saw its first monthly dip in a year. Indicators suggest the future of U.S. oil production cannot sustain its output and will shift to a near-term plateau in supply.

In March, the U.S. Energy Information Administration (EIA) trimmed its crude production forecast to an average of 12.3 million barrels per day (bpd) for 2019 from 12.4 million bpd. That was the first time the EIA cut its production estimate since September. U.S. crude supply ballooned in 2018, which overall production rising by 1.7 million bpd to a record 10.9 million bpd in 2018. That was the biggest year-over-year increase in output, according to EIA data going back to 1859.

Morgan Stanley’s crude growth projection for the year showed 100,000 bpd less due to well “productivity improvements slowing, the rig count rolling over” and guidance from exploration and production companies.

According to federal data, per-well productivity in the Permian Basin is projected to fall by about 6 percent in April 2019 compared with a year ago. Lower amounts of oil are also being delivered per well, slowing the rate of output growth.

The number of drilling rigs started to fall after domestic crude prices dropped to USD $42 a barrel in December from a peak of USD $76 in October, but prices have since recovered, with U.S. crude now at about USD $62. At the urge of investors, U.S. drillers have cut spending. Though Exxon Mobil and Chevron are expanding in Texas’s Permian region, independent companies are not.

Major oil companies plan to spend about 16 percent more on U.S. drilling and completions in 2019 versus last year, however independent exploration and production (E&P) companies are expected to cut spending by around 11 percent, according to financial services firm Cowen & Co.