The US Energy Information Administration (EIA) released its weekly petroleum report today and it continues to point to ample supplies of crude oil and related products. But domestic crude oil production fell for the first week in a long time. Is this just a blip or have we begun the downward slide in crude oil production due to lower prices?
Context: Very High Supplies
Crude supplies rose 1.6 million barrels (Mb) to 361.1 Mb, the highest storage level since July 1993. And supplies of gasoline, distillates, and propane are all significantly above average largely thanks to demand that is 2.8%, 9%, and 8.8% below last year, respectively. On top of these recessionary low demand levels, US oil output is currently more than 5% higher than last year due to a multi-month/years lag in production increases induced by the high prices of 2006-08.
Delayed Effect of Lower Rig Count
Lower oil prices has triggered an ~45% drop in active US oil rigs drilling new wells. So, oil field decline should begin to eat away at overall output levels soon. This process takes months because it often takes a few months for new oil wells to ramp up their production. The question is, are we there yet?
US oil production dropped a tiny .2% last week, from 5.48 million barrels per day (Mbd) to 5.469 Mbd. If this drop continued every week for the next year, US oil production would fall ~10% back below 5 Mbd. So, we must track any emerging trend.
We’re Fine For Now
Even a persistent drop of .2% per week should not trigger a huge price spike in the weeks or few months ahead. Supplies of oil and its fuel products are way above average. But if a falling production trend does persist into the Fall and the economy stops deteriorating, oil prices could begin to climb significantly in the second half of 2009.
I will keep you informed on whatever trend emerges and how it affects our efforts to lower greenhouse gas emissions in the US and beyond.
Onwards in the Sustainable Energy Transition-
Tags: 2009, oil prices, supply, US