By Sheela Tobben on 4/7/2021
(Bloomberg) –The U.S. slashed its oil production forecast through next year just as OPEC and its allies begin to rollback their production cuts in the coming months.
U.S. oil output is set to reach 11.04 million barrels day this year, down from last month’s forecast at 11.15 million after a deep freeze in February that shutdown the oil industry in Texas, according to U.S. government data. The Energy Information Administration also lowered its output forecast for 2022 by 100,000 barrels a day.
The lower output forecast comes as Wall Street has grown reluctant to fund growth while shale operators are focused on increasing cash flow and return to investors rather than adding production. With the U.S. unlikely to return to previous output levels, OPEC+ is moving to roll back part of their supply cuts in the coming months.
“It would be very hard for the US oil and gas industry to get back to over 13 million barrels a day. I don’t think that’s going to happen,” Occidental Petroleum Corp. Chief Executive Officer Vicki Hollub said at a conference Tuesday. “Too much investment would be required,” she said, reiterating her view that U.S. has past peak oil production.
The OPEC+ decision expressed growing confidence in the economic recovery and higher oil prices. In the past four months, benchmark U.S. crude oil prices have gained over 36%.
Even though the EIA is lowered its forecast, production will likely expand modestly from current levels. American explorers are still moving to add supply, last week they to add the most rigs in more than a year. Still, the oil rig count stands at about half of what it was when the pandemic began.
With the U.S. unlikely to return supply to pre-pandemic levels, some market observers don’t expect global crude supplies to grow fast enough to satisfy demand as vaccinations proliferate and economies reopen.
Oil supply is proving to be “mostly inelastic” in the very near-term, as shown by the lack of production growth after Saudi Arabia’s cut prices rallied this year, Jeff Currie, head of commodities research at Goldman Sachs Group Inc., said in a Bloomberg Television interview last week.