Domestic crude production is apparently setting records, and the instability in some oil-producing areas across the globe indicates that the demand for U.S. oil will remain high for now, several analysts said.
“The short-term outlook is that there is a fear of an escalation right now,” said Edward Moya, an analyst at OANDA. With the potential of a widening conflict in the Middle East, as well as ongoing conflict in Ukraine, oil prices have the potential to increase beyond current production levels.
The high volumes come even as Oct. 13 rig counts show a 147 drop from last year, according to the Baker Hughes rig count.
Because the rig count numbers factor into drilling wells and not completing them, production declines typically trail the dips in rig counts by a few months.
In its monthly Drilling Productivity Report, the new production surge caused the EIA to revise up its Permian Basin and Eagle Ford Shale production estimates. For instance, the Permian’s crude production for October was revised up from 5.77 MMbbl/d to 5.93 MMbbl/d.
Still, the EIA sees Permian volumes dipping to 5.90 MMbbl/d in November. Declines are still anticipated, but they are taking longer than the EIA previously forecast.
Many producers are continually counting increases in production efficiency while using fewer rigs as they drill longer horizontal laterals and space out their wells a bit more than in recent years.
Exxon Mobil touted just that as a big part of its $60 billion acquisition of Pioneer Natural Resources in the Midland Basin. While Exxon Mobil has not drilled many four-mile laterals yet, Senior Vice President Neil Chapman said those lengths can and will be drilled with much more regularity after the blocky, contiguous acreage is added in much of the Midland’s sweet spots.
In the U.S. Energy Information Administration's most recent weekly update, the first week of October saw domestic crude production rise by 300,000 bbl/d from the prior week, setting an all-time production high of 13.2 MMbbl/d.
The previous record of 13.1 MMbbl/d was set in February 2020, just before the COVID-19 pandemic shut down much of the U.S. and world economy.
The latest benchmark also comes at a time of increased tensions, especially the unfolding conflict between Israel and Hamas. Israel’s possible ground offensive into Gaza could have the effect of widening the conflict. Iran’s foreign minister told Al Jazeera that an Israeli attack into Gaza would make it “highly probable that that many other fronts will be opened.”
Iran’s production, which is under sanctions by many Western countries, averaged 3.4 MMbbl/d in fourth-quarter 2023.
Jamie Webster, associate director of the Boston Consulting Group, said he did not expect the Israeli conflict to affect U.S. production, barring a massive disruption in Middle East.
“Across the world, the tensions in the Gulf have rattled the markets only slightly, with prices up a bit since the initial attacks,” Webster said. “If the attacks, as well as the response to them, ends up causing a sharp rise in the risk premium, production can be expected to continue to rise, but it will likely take a more durable price move to shift producers away from their current capital discipline strategy.”
As of the morning of Oct. 17, the price of WTI was at $86.48/bbl, up slightly from $86.38/bbl immediately after the start of the Oct. 7 Hamas attacks. Crude prices have risen steadily from a summer low of $67.12/bbl in June and hit a high of $93.68/bbl on Sept. 27.
Assorted international events have been driving prices downward since , Moya said. Reports surfaced last month that the U.S. would come to a deal to ease sanctions on Venezuelan crude. Reuters reported that an announcement was expected as early as Oct. 17. Brent futures fell by $0.59 to $90.27/bbl on the news. WTI futures fell slightly, by $0.29, to $87.30.
Moya said he did not expect the current global situation to cause any dramatic shifts in the crude market and, therefore, expected to see U.S. production continue near to its present record levels.
“This pullback with crude prices doesn’t come with a key catalyst that will prevent this oil market from remaining tight over the short-term,” he said.