US crude oil production dropped from 11.35 million barrels per day in July to 11.07 million barrels per day in August, as Hurricane Ida shut down more than 90% of production capacity in the Federal Gulf of Mexico. Most capacity is now back online, and US crude oil production is expected to reach 11.34 million barrels per day by the end of the year. After a sharp decline in 2020, US crude oil production continues to recover, but still stands well below its pre-pandemic high of 12.97 million bpd. According to most forecasts, production will not fully recover until 2023. Rising oil prices—with the WTI increasing from US$ 60 per barrel in April to US$ 80 per barrel today—are expected to raise US production, but upside potential will be limited by rising input costs, oilfield service delivery delays, and financing issues.

Our View

As global oil prices rise and multiple sources are revising up their oil price forecasts for 2022, a key question for the oil outlook is to what extent US crude oil production, particularly tight oil, will expand to take advantage of higher prices and potentially limit price increases. On the one hand, shale oil production has historically benefited from tight production turnaround, which could allow for fast increases in supply in a rising oil price environment. On the other hand, with higher breakeven prices than for other global oil producers, tight financing, and industry consolidation, many analysts anticipate significant production hurdles for US shale in 2022. An additional hurdle is the issue of input costs and delivery delays, similar to what other industries are experiencing. The latest Dallas Fed Energy Survey shows that oil production expectations remain strong but have moderated recently in the face of significant cost pressures, longer-than-ever supplier delivery times, and labor shortages. Given various hurdles, US crude oil production is expected to climb to 12.20 million bpd and could rise to as high as 12.40 million bpd by the end of next year, but further upside potential is limited.

Business Implications

Limited supply increases from US shale imply that oil prices will remain elevated for the next 1–2 quarters, before easing later in 2022. Multinationals should continue to anticipate high energy input cost pressures next year. For US industrial sector firms, a healthy, if subdued, oil production outlook implies reasonably strong CAPEX growth and structures investment that will benefit firms serving energy production end users.

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