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US oil output continues to surge despite four-year low crude prices

The International Energy Agency have released figures expecting US oil output to increase by 1.4m b/d this year

The ongoing surge in US light, tight oil helped to push the country's total crude output to record levels in October, despite oil prices being at four-year lows. Total US oil output, including crude oil, condensate and natural gas liquids (NGL),  averaged 12.2 million barrels a day (b/d) in October, according to figures from the International Energy Agency (IEA).

US crude oil production increased by 150,000 b/d in October, reaching 8.9m b/d. This was driven by the surge in the country's soaring light, tight oil production, which reached 3.9m b/d in October - a 100,000 b/d rise from the previous month. NGL output also bounced back up to 3m b/d last month as production recovered from September's seasonal declines. 

The IEA expects total US oil output to rise by 1.4m b/d this year, with a further 955,000 b/d expected to be added to total production in 2015. US oil output has risen by around 62,000 b/d since 2010, according to US Energy Information Administration (EIA) figures. The country's crude oil and condensate production is now at its highest level since July 1986. The EIA expects the country's previous crude production record - of more than 10m b/d in the 1970s - will be surpassed by the end of next year. 

US oil output has surged over the past four years, rising from 5.4m b/d in January 2010 to almost 9m b/d currently, mainly because of the country's prolific shale and other tight oil formations. The country's highest producing tight-oil reservoirs this year include Texas' Eagle Ford and Wolfcamp formations, North Dakota's Bakken-Three Forks formations and New Mexico's top Spraberry and Bone Springs formations. Also adding to production is output from Oklahoma's Woodford Shale formations, Colorado's Niobrara formation, Utah's Green River formations, Ohio's Utica and Point Pleasant formations, and the Marcellus Shale in West Virginia and Pennsylvania.

In August, more than half of total US oil output came from record production from three basins in three states. Output from the Permian basin in Texas and New Mexico reached 1.66 million b/d, while the Eagle Ford Shale in Texas' Western Gulf Basin produced 1.57m b/d, according to EIA figures. The Bakken Shale in North Dakota's Williston basin produced for 1.13m b/d.

This boom in production shows no signs of declining despite weak domestic and international crude prices. By mid-November, Brent and WTI prices have tumbled to four-year lows of around $80/b and $75/b, respectively. Soaring non-Opec production, relatively weak global demand since mid-2014, a stronger US dollar and the growth in unconventional oil supply have all weighed on crude prices.   

The IEA estimates around 4% of US light, tight oil output has a breakeven price of $80/b or higher. Production in Burke and Divide counties, both in North Dakota's Bakken play, which together pumps around 53,000 b/d of US oil, may already have become 'notionally uneconomical' at the current price, the IEA said. However, the IEA said that most of North Dakota's light, tight oil production in the Bakken play remains profitable at or below $42/b. The breakeven price in McKenzie County, the most productive county in the state, is only $28/b - comfortably below the current $70/b price for Bakken sweet crude oil.

At the launch of the IEA's World Energy Outlook in mid-November the agency's chief economist Fatih Birol said that if Brent prices remain around $80/b, investment in US light, tight oil projects would likely fall by around 10% next year.

While falling oil prices may trim investment levels in light, tight oil projects, this will not necessarily lead to production cuts because projects have become more cost-competitive, the IEA said. "Cost reductions and efficiency gains in light, tight oil production have been constant, and price pressures would only provide more impetus for producers to cut costs further," the IEA said in its November Oil Market Report. "While some companies are re-thinking big-ticket projects from Canada to Angola, delays or spending cuts would affect the longer-term supply outlook rather than short-term production," the report said. "Pressure on Opec to reduce production is building, but ... [currently] there appear[s] to be no clear consensus on a formal supply cut ahead of its meeting in Vienna [in November]."

Opec members are due to meet on 27 November to discuss whether to cut output following a 30% fall in Brent prices since the group's last meeting in June. The IEA said that barring any new supply disruptions Brent prices are likely to fall further in the first half of 2015.

Global oil production increased by 35,000 b/d in October, to 94.2m b/d, according to IEA figures. This is around 2.7m b/d higher than in the same period last year because of production rises from both Opec and non-Opec producers. The IEA does expect global oil demand to grow by 1.2m b/d next year, reaching 93.6m b/d as the global economic backdrop improves. This year the rate of global oil demand growth was at a five-year low of around 680,000 b/d because of subdued demand in Europe, China and OECD Asia.

The IEA said a return to previous oil-price highs may not happen anytime soon as the global market has entered a period of deep structural change. "Economic development no longer spurs oil demand growth as it once did. China - has entered a less oil-intensive stage of development, while years of high (oil) prices have let innovative technologies unlock untold resources in North America," the IEA said. "The steeper they are, the less sustainable oil price swings tend to be. But a return to previous price highs may not be a close prospect, as it is increasingly clear that we have begun a new chapter in the history of the oil markets."

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