Latest News

Record US oil and gas production keeps costs under pressure: Kemp

U.S. production of oil and gas set brand-new seasonal records in December, capping off an unprecedented year, according to information published by the U.S. Energy Info Administration (EIA) on Thursday.

Production continued to climb even as rates plunged from the extremely high levels seen in mid-2022 after Russia's intrusion of Ukraine, adding to the build-up of inventories.

On the oil side, total production of crude and condensates increased to 413 million barrels in December from 376 million in the final month of 2022 ( Petroleum supply monthly, EIA, Feb. 29, 2024).

Production was performing at 13.3 million barrels per day (b/d). in December, an increase of 1.2 million b/d (10%) from a year. previously.

The prior-year contrast was flattered by the extreme cold. which triggered extensive well freeze offs and a quick however sharp. drop in production in late December 2022.

For the year as an entire, however, output increased to 4,721. million barrels in 2023, up from 4,347 million in 2022, and had. doubled since 2012.

Chartbook: U.S. oil and gas production

Inflation-adjusted front-month U.S. crude futures averaged. $ 72 per barrel (44th percentile for all months because 2000) in. December, below a current high of $121 (82nd percentile) in. June 2022.

Oil-directed drilling has slowed in line with the fall in. rates, with a hold-up of around five months, which is normal. provided the time considered part-drilled wells to be completed and. rig hire agreements to expire.

The number of rigs drilling for oil balanced 501 in. December, below 623 in December 2022, according to oilfield. services company Baker Hughes.

But there was no similar downturn in output as rigs. enhanced performance by concentrating on only the most appealing. sites and teams structured the drilling procedure.

Horizontal well areas became even longer, increasing. contact with the tank and enabling more oil to be recovered. from each well.

In the short-term, the U.S. oil industry has actually ended up being skilled at. producing more oil, at lower costs, with fewer drilling teams.

In the medium term, it is uncertain if the market can. continue raising performance at the exact same rate or whether further. output growth will depend upon greater costs.

If production is currently beginning to flatten out in action. to lower costs, the proof stays inconclusive up until now.

U.S. GAS PRODUCTION

Dry gas production reached a seasonal record of 3,300. billion cubic feet (bcf) in December from 3,107 bcf a year. previously ( Natural gas regular monthly, EIA, Feb. 29, 2024).

For the year as an entire, production hit a record 37,883 bcf,. up from 36,353 bcf in 2022, and had doubled since 2006.

Inflation-adjusted futures prices plunged to $2.55 per. million British thermal units (fourth percentile for all months. given that the start of the century) in December.

Rates have actually considering that been up to approximately simply $1.80 last. month, the most affordable in genuine terms because at least 1990, when the. futures contract started trading.

As with oil, the number of rigs has fallen, however there has. been no decline in production, leaving the marketplace persistently. oversupplied.

The variety of rigs drilling for gas balanced 119 in. December, below an average of 162 in September 2022, the. recent peak.

However production has continued to climb for the same factors. as oil-- concentration on the most promising websites, structured. work practices and longer well laterals.

Because lots of gas is, output has likewise continued to increase. recuperated as a co-product from brand-new and aging oil wells.

Production has increased much faster than domestic and export. demand, triggering a substantial accumulation of stocks and. magnifying the down pressure on prices.

Working gas stocks in underground storage were 461 bcf (+24%. or +1.25 standard variances) above the long-lasting average on. Feb. 23.

The surplus has swelled from 64 bcf (2% or +0.24 requirement. discrepancies) at the start of the heating season on Oct. 1.

Strong El Nino conditions in the Pacific have actually resulted in a. much warmer than typical winter season throughout the northern United. States, cutting gas intake.

Consistent over-production and the delayed reaction to. falling costs has turned a warm winter into a prodigious excess. of gas.

Related columns:

- El Niño presses real U.S. gas rates to multi-decade low. ( February 16, 2024)

- Rising U.S. oil production annoys OPEC? cuts (February. 1, 2024)

John Kemp is a market expert. The views expressed. are his own. Follow his commentary on X https://twitter.com/JKempEnergy.

(source: Reuters)