On July 30th, the U.S. government agency The Energy Information Administration (EIA) announced provisional U.S. crude oil production figures for May 2013. Key points:
- May crude oil production was 226.8 million barrels, equivalent to 7.3 million barrels per day (bpd)
- Change over May 2012 on a barrel-per-day basis: +15.4% y/y
- May total crude oil plus natural gas liquids 303.6 million barrels, equivalent to 9.8 bpd
As can be seen from the chart below (click for larger image, link to original data here), the fracking of tight oil formations in the U.S. has made a major impact on U.S. crude production. The critical question is whether the current large year-on-year percentage growth rates in oil production can be sustained.
The year-on-year increase in production peaked in October 2012 at 18.2%, but currently year-on-year oil production gains remain robust, with mid-teen growth rates being recorded. The situation for oil is in marked contrast to that of U.S. natural gas, where production growth has stopped.
The differentiator here is price. Both tight gas and tight oil are expensive to produce compared with the conventional alternatives. Accordingly, production investment requires a high product price to remain feasible. U.S. natural gas prices are down roughly by half from their average level in the 2005 to 2008 period (removing the temporary 2008 spike). By contrast, the price of West Texas Intermediate, the U.S. benchmark oil price, remains near all-time highs (again excluding the very short-term 2008 spike).
Given crude oil is a globally traded commodity, U.S. production numbers need to be placed in the context of world supply and demand. In its latest Oil Market Report dated 11 July 2013, the International Energy Agency (IEA) recorded global ‘all liquids’ production of 91.2 million bpd for June 2013, down 0.3 million pbd from the previous month.
Full quarterly IEA world supply-and-demand figures, including Q2 2013 estimates, can be found here. The preliminary estimate for Q2 2013, shows a 0.5% rise over Q2 2012. The lacklustre increase in supply accounts for why world oil prices remain strong despite a slowdown in global GDP growth.