Is U.S. Oil Production Peaking? Analysts Say Not Yet, But Slowdown Expected
As global markets face volatility and supply concerns, the question of whether U.S. oil output has reached its peak is gaining importance. According to BCA Research analysts, U.S. oil production has not yet peaked and is projected to continue its upward trajectory, albeit at a slower pace than in previous years.
In August 2024, U.S. crude production hit a record high of 13.4 million barrels per day, indicating a 3% increase from the previous year. This growth highlights the resilience of the U.S. oil industry despite a broader global slowdown in production expansion. However, the growth rate has decelerated compared to the 8% year-over-year increase seen in 2023.
The Permian Basin plays a crucial role in driving U.S. output, accounting for 48% of the country's production and 8% of global supply. Analysts suggest that the path of least resistance for oil prices in the next 6 to 12 months is downwards, primarily due to energy companies prioritizing capital discipline and consolidation in the sector.
Furthermore, subdued oil prices are dampening the incentives for U.S. producers to ramp up supplies significantly. Analysts believe that prices need to rise between $64 and $89 per barrel to make new drilling highly profitable. With current prices hovering around $70 per barrel, there is not strong motivation for increased drilling activity.
Despite a declining rig count and decreasing inventories of drilled but uncompleted wells, U.S. production continues to expand due to enhanced well productivity. Infrastructure developments, particularly in the Permian Basin, are expected to sustain U.S. oil production growth by expanding pipeline capacity.
While positive indicators exist, a significant reacceleration in U.S. oil output is unlikely without a substantial price spike, potentially driven by geopolitical events. The current business cycle slowdown and decelerating global demand are creating challenges for oil prices in the near term.
In conclusion, although U.S. oil production has not yet peaked, a slowdown in growth is expected. This could have implications for investors, as lower oil prices and reduced drilling activity may impact energy sector stocks. It is important for investors to stay informed about market trends and potential geopolitical events that could influence oil prices and production levels.