Oil production in the United States (US) has risen sharply in recent years and recently even reached its highest level since 1970. What else is going on in the oil market, and what will the production level in the US be like?
The increase in production is mainly caused by the continued growth of the shale oil production. In terms of production volume, the US has currently surpassed Saudi Arabia, leaving only Russia ahead. ABN Amro expects oil production to increase even further in the coming period. And with that, it is only a matter of time before the US becomes the largest oil producer in the world.
Difference in insight
The American Energy Information Administration (EIA) also expects that production will increase. The organization expects the US to produce 11 million tonnes of barrels per day by the end of the year. However, not everyone agrees. This is what the International Energy Agency (IEA) expects the OPEC that the country will only reach this level in the course of 2019.
The fact that the organizations disagree is because there is a difference in understanding about the growth of oil production in 'Bakken' and 'Eagle Ford'. At a certain point, the most attractive production locations are in use. This raises the question of whether a possible stabilization in those regions will be absorbed by additional production in the 'Permian reservoir'.
The largest producer
But what if the US ends up being the largest producer? According to analysts, it is important to distinguish between the hundreds of oil producers in the US (each pursuing its own interests) and the oil producers in Saudi Arabia and Russia (which are state-owned). Developments in the US will mainly follow the oil price, while Saudi Arabia remains a 'swing producer'.
This means that the authorities in the country are prepared to adjust the production level in order to maintain or gain stability in the market. An American producer will not easily adjust oil production downwards, because it will be at the expense of his short-term returns.
Demand continues to rise
ABN Amro assumes that demand will continue to rise by approximately 2018 million barrels per day in both 2019 and 1,5. That leaves plenty of room for more growth in the US, but it also leaves room for tapering production reduction agreement between the OPEC countries and some other oil producers (such as Russia). Al-Falih, Minister of Energy in Saudi Arabia, has already indicated that he does not necessarily want to extend this agreement.
However, he also indicated that a period of 'over-stimulation' is not undesirable. That means OPEC is in no rush to ramp up production, which could potentially lead to shortages if demand isn't fully met. However, Al-Falih's words had little impact on oil prices.
Estimate of prices
ABN Amro lets in the report also see an estimate of oil prices (Brent oil). On March 5, the price reached $65,56 per barrel. This price is expected to remain at $65 per barrel at the end of March. Looking ahead (March and June 2019), the bank expects the price of Brent oil to reach $80 per barrel, after which it is expected to drop again to $75 per barrel by the end of September.
In addition to Brent oil, a forecast is also made for WTI oil. That price stood at $5 per barrel on March 62,63. The price is expected to be $62 per barrel in March. ABN Amro expects the price (end of March and end of June 2019) to be around $73 to $74 per barrel.