U.S. oil and gas production is finally showing signs of flattening, as drilling rigs and well completion crews have been idle in response to falling prices since mid-2022.
Nationwide crude oil and condensate production was nearly 13.2 million barrels per day (b/d) in March 2024, according to the latest data from the U.S. Energy Information Administration (EIA).
However, there has been no net growth since October 2023, indicating that the surge in production following the end of the coronavirus pandemic and Russia’s invasion of Ukraine has ended.
Production in the lower 48 states, excluding federal waters of the Gulf of Mexico, increased by less than 0.5 million b/w since March compared to the same month a year earlier.
Growth slowed from 0.9 million or 1.0 million b/d in the second half of 2023, as the momentum from 2022’s high prices faded.
Chart: Oil and gas production in the United States
Inflation-adjusted U.S. futures prices fell to around $81 per barrel in December 2022 (50th percentile for all months since the turn of the century) from a high of $124 in June 2022 (83rd percentile).
Production began to stabilize or retreat approximately 10-12 months later, consistent with the historical relationship between price and production changes.
Clear evidence that U.S. oil production was running out was masked by unusual weather in December 2023 and January 2024, which distorted year-over-year comparisons.
But with the return of more normal weather in March 2024, the lack of net growth over the past six months has become apparent.
OIL STABILIZATION
US futures prices averaged $73-$78 per barrel during May and June 2024, placing them in the 45th-50th percentile in real terms for every month since 2000.
At these prices, there is no strong signal to increase or decrease production.
The number of oil rigs fell to an average of just 497 in May 2024, compared to the cyclical peak of 623 in December 2022.
If futures prices hold at current levels, US production is likely to remain essentially flat for the remainder of 2024 through at least mid-2025.
Lower prices and limited U.S. production growth would create room for Saudi Arabia and its OPEC allies to reverse some of their production cuts later this year and into 2025.
GAS PRODUCTION IN THE UNITED STATES
The decline in gas prices since mid-2022 has been even more severe and has brought all production growth to a halt.
Dry gas production averaged 102.6 billion cubic feet per day (bcf/d) in March 2024, compared to 102.9 bcf/d in March 2023.
Dry gas production appears to have peaked in late 2023 and has been slightly but steadily decreasing since then.
Inflation-adjusted futures prices fell to an average of $1.75 per million British thermal units in March 2024, the lowest in more than three decades, falling from more than $9 in August 2022.
As a result, the number of gas rigs fell to an average of just 115 in March 2024, from a cyclical high of 162 in September 2022, according to oilfield services firm Baker Hughes.
Since then, the number of active rigs has fallen further, to an average of just 101 in May 2024, as major producers scaled back drilling programs in response to extremely low prices.
Unless there is an unexpected price recovery, production is likely to remain essentially flat for the remainder of 2024 and 2025, helping to rebalance the market.
Flat or declining production, combined with heavy gas burning by generators this summer, colder weather next winter and increased LNG exports, should clear excess supplies before the end of winter 2024 /25.
Related columns:
– US gas surplus to be eliminated before end of winter 2024/25 (May 8, 2024)
– US Oil & Gas Production Rebounds After Winter Storm(May 1, 2024)
– US Oil and Gas Production Severely Hit by Winter Storm (April 3, 2024)
– Record oil and gas production in the United States keeps prices under pressure
John Kemp is a market analyst at Reuters. The opinions expressed are his. Follow his comments on X https://twitter.com/JKempEnergy (Writing by John Kemp; Editing by Susan Fenton)
