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US oil output set to increase further

Publication Date : 14-07-2014

 

The world’s top crude consumer, the United States, is now the world’s top producer, overtaking Russia and Saudi Arabia.

In the first quarter of 2014, the US extracted more than 11 million barrels of crude per day, compared with Russia’ daily output of 10.53mbpd and Saudi Arabia’s 9.45mbpd, Bloomberg reported citing Energy Intelligence Group.

Last month, the Paris-based International Energy Agency too conceded that the US was the biggest producer of oil and natural gas liquids. And the US was already declared in 2010 as world’s largest natural gas producer.

The situation is set to persist for some time now. “It’s very likely the US stays as No. 1 producer for the rest of the year” as (the US) output is set to increase (further) in the second half, Francisco Blanch, head of commodities research at the Bank of America Corp told Grant Smith by phone from New York.

The US will consolidate its position as the world’s biggest producer in the coming months, if returning Libyan supply limits the need for Saudi barrels, Julian Lee, an oil strategist writing for Bloomberg News First Word said.

US crude oil production has been rising steadily since 2008. Next year it is likely to hit its highest level since 1972. US output has jumped from 5mbpd in 2008 to 7.4mbpd last year and is expected to average 8.5 million this year and 9.3 million next year, according to the EIA, the analytical arm of the US Department of Energy.

This boom, along with a rise in natural gas liquids production, has dramatically lowered US imports. The share of US liquid fuels consumption met by net imports, which went down from 60 per cent in 2005 to 33pc in 2013 is now expected to fall further significantly to 22pc in 2015 - the lowest level since 1970.

Significant investment in the energy sector has helped spur the domestic US output. Annual investment in oil and gas in the country touched a record $200 billion — some 20 per cent of the country’s total private fixed-structure spending for the first time, Blanch was quoted as saying.

Interestingly, despite significant growth in US output, market prices have not tumbled. Bad news is often regarded as good news for the oil industry.

The same seems to be holding true at this stage. “The shale production story is bigger than Iraqi production, but it hasn’t made the impact on prices you would expect,” said Blanch.

“Typically such a large energy supply growth should bring prices lower, but in fact we’re not seeing that because the whole geopolitical situation outside the US is dreadful.”

In view of the growing US supplies, the Opec too is cutting forecast of demand for its own oil by 300,000 barrels a day next year. Demand for crude from the 12 Opec members should remain at an estimated 29.7mbpd through 2014, but drop to 29.4m bpd in 2015, Opec oil report underlined.

Consequent to all this, the Organisation of the Petroleum Exporting Countries (Opec) market share is going down. Demand for Opec crude would edge down in 2015 to 29.8mbpd, from 29.9 million this year, slightly below the level pumped by the group in June at just over 30mbpd, the International Energy Agency (IEA) reported.

Opec too is conceding that non-Opec supplies is expected to grow by 1.3mbpd to 57mbpd in 2015 at a time when the global demand for crude is estimated to be 92.3mbpd, up from 2014 by 1.2mbpd. The IEA too believes the growth in demand will be met by rising supplies from the US and Canada.

The crude world has changed — at least for the short to medium term. And even beyond, other issues continue to plague the crude outlook. Would crude continue to be the dominant source in the global energy mix then is open to debate. All this has immense geopolitical connotations too.

Oil producers’ sphere of influence, courtesy the black gold, is getting impacted — rather adversely!

 

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