US oil producers maintain modest growth as OPEC+ eyes extended cuts
U.S. oil drillers are sticking to pledges to temper spending on boosting output, keeping the world’s top crude producer on course for slower growth in 2024 in what may ease pressure on OPEC+ to make further supply cuts this weekend.
The U.S. has driven growth in global oil supply from non-OPEC producers over much of the past decade due to the shale revolution and breakthroughs in technology and efficiency that have boosted output.
Last year, U.S. crude output surprised to the upside, growing over a million barrels per day to 12.93 million bpd and well over the roughly 400,000 bpd the government predicted at the start of 2023.
The Organization of the Petroleum Exporting Countries and allied producers in the group known as OPEC+ deepened supply cuts last year in part to compensate for rising output from the U.S. and other non-OPEC producers.
Total OPEC+ cuts stand at 5.86 million bpd, equal to about 5.7% of global demand.
OPEC+ is working on a complex deal that will allow the group to extend some of these cuts into 2025, three sources familiar with OPEC+ discussions said on Thursday.
As OPEC+ meets on Sunday to consider supply policy, U.S. production increases continue to drive gains in non-OPEC+ output but will present less of a threat than they did in 2023.
The government’s latest forecast is for U.S. crude supply to rise by about 270,000 bpd this year. That is similar to OPEC’s own forecast for U.S. crude and condensate output to grow by 300,000 bpd.
which could raise as much as $13.1 billion for the oil giant.
The International Energy Agency expects higher U.S. output growth of 640,000 bpd. The three are the most closely watched forecasters, and all were well below last year’s figure.
OPEC expects global demand growth of 2.2 million bpd to outstrip supply growth from oil producers outside the OPEC+ group by about one million bpd in 2024. That would imply that demand for OPEC+ crude should be around 900,000 bpd more than in 2023, the group said in its May monthly oil market report.
The IEA expects a much lower global demand growth of 1.1 million bpd and little change in demand for OPEC crude.
LITTLE CHANGE SO FAR
Overall U.S. crude output has changed little so far this year. Output in April was around 13.13 million bpd, down from 13.26 million bpd in December.
U.S. producers seem unlikely to surprise to the upside in the way they did in 2023, even as oil prices hover close to $80 a barrel, industry executives and analysts said.
“Our customers are remaining very conservative and disciplined,” said Paul Mosvold, chief operating officer at contract driller Scandrill.
“It’s been surprising that the rig count hasn’t ticked up more given current prices.”
His company is keeping capital spending flat and holding off upgrades to its rigs to best align with a flatter drilling growth. It plans to operate 12 rigs by year-end and re-deploy a few more next year.
The U.S. oil rig count has fallen to 496, down 13% from year-ago levels, according to data from Baker Hughes.
“The U.S. has the ability to grow at 1 million bpd for a number of years, but there is presently no desire to grow at that rate,” S&P analysts said in a note on Thursday.
S&P Global Commodity Insights expects an increase of 470,000 bpd in U.S. crude oil and condensate production this year.
DISCIPLINED GROWTH
Publicly traded U.S. producers have limited spending on growth in recent years, under pressure from investors after unbridled spending drove breakneck growth but limited returns from the shale sector in the 2010s.
Higher-than-expected output increases in recent years have been driven in part by private producers, some of which are now being swept up in a wave of consolidation hitting the sector. They have increased productivity by drilling longer wells and fracturing the rock to produce oil from more wells at the same time.
“I expect that despite the recent wave of consolidations, we will see current oil prices continue and help support moderate gains in overall U.S. oil production growth as constant improvement in drilling and completion efficiencies continues,” said Timothy Roberson, president of Texas Standard Oil.
Oilfield service firms, like SLB (SLB.N), opens new tab, are forecasting more growth from international markets this year rather than North America. Its first quarter international revenues grew 18% this year, while North American revenues were down 6%, in part due to consolidation.
“There has been a shift in strategy in recent years, with a stronger focus on capital discipline, resulting in a different reaction,” said Giovanni Staunovo, an analyst at UBS bank, who thinks OPEC+ will extend its voluntary cuts.
Still, the U.S., along with Canada, Brazil and Guyana, are anticipated to lead oil and liquids production growth this year. Petroleum liquids production from OPEC+ is anticipated to decline by 1 million bpd this year, while non-members’ supply will grow by 1.4 million bpd, the EIA said in March.
“OPEC+ has learnt to live with U.S. oil production growth”, UBS’ Staunovo said.