What’s happened?

US crude oil and condensate production reached a new record in September, up by 7.4% year on year. Increased US output is one of several factors that have pushed crude oil prices down since late September, which will continue to undermine OPEC’s efforts to support prices in 2024.

Why does it matter?

Declining private investment in oil and gas exploration, in addition to a pandemic-induced slide in output, had largely lessened the US’s influence as a swing producer in the past few years years. However, recent output growth and OPEC’s efforts to constrain supply have strengthened the US’s impact yet again. We now expect crude oil prices to ease slightly in 2024, reflecting higher US production and slower growth in global demand.

Yet, we do not expect US production growth to continue indefinitely. The latest increase comes despite the recent dip in crude prices and a fall in the number of active drilling rigs. In total, 505 oil rigs were operating in the US at end-November, down by 20% year on year, according to Baker Hughes, an oilfield-services firm. Shale producers, which now account for about two-thirds of US output, have thus far offset the drop in prices by improving their efficiency, for example by concentrating rigs in the highest-yield locations and drilling longer horizontal wells.

This rationalisation of spending will take time to trickle through; changes in oil prices typically start to affect output levels after one year. With exploration activity having peaked in late 2022, many wells are only now coming online. Although we expect output to rise further in early 2024, many US oil majors have for some time indicated a shift in focus to greater fiscal discipline, foregoing higher capital spending in favour of rewarding shareholders through increased dividends and share buybacks. Increased investor focus on the environment, as well as a dwindling pool of private investment in the oil and gas industry in recent years, will also limit growth.

Moreover, exploration and production costs are rising steeply. Breakeven prices in the Permian Basin in Texas, the biggest shale oil area, jumped by 17% in the year to March. We expect that fewer firms will consider drilling new wells as the profitability of existing operations shrinks owing to a combination of rising costs and falling prices.

What next?

We forecast that US crude production will rise by 2% in 2024 to a record 19.6m barrels/day, after having grown by an estimated 7.3% in 2023, to 19.2m b/d. This will bolster US energy exports in the coming years, supporting a narrowing of the current-account deficit. However, we expect the recent decline in exploration activity to translate into slightly lower production from 2025.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.