The United States was still the world’s top producer of oil and gas in the world during 2014, despite falling oil prices.
The Energy Information Administration reports that “U.S. hydrocarbon production continues to exceed that of both Russia and Saudi Arabia, the second- and third-largest producers, respectively.” EIA adds that U.S. petroleum production has increased “by more than 11 quadrillion British thermal units” thanks to drillers in Texas and North Dakota.
“Despite the 50% decline in crude oil prices that occurred in the second half of last year, U.S. petroleum production still increased by 3 quadrillion Btu (1.6 million barrels per day) in 2014,” EIA notes. “Natural gas production—largely from the eastern United States—increased by 5 quadrillion Btu (13.9 billion cubic feet per day) over the past five years.”
Russian and Saudi Arabian production increased as well — by 3 quadrillion Btu and in Saudi Arabia by 4 quadrillion Btu in the last five years, respectively. The U.S. production increases were surprising, however, because many energy experts predicted that higher cost oil wells in the U.S. would be outcompeted by lower cost Saudi wells.
U.S. shale drillers were more resilient than predicted and continued to increase production. It was until the last couple of months that companies began to slightly cut production. EIA data shows that production fell by 135,000 barrels per day from December 2014 to January 2015 to about 9.2 million barrels per day.
Energy analysts predict further cuts to U.S. oil production as relatively low oil prices are predicted to continue throughout the year. Also, the pending nuclear deal with Iran could mean more oil being put onto international markets, driving prices down even further.
“It’s important to keep in mind that oil trades a month and a half ahead, so if the sanctions are lifted in three months or in four months, oil is going to start pricing that up pretty soon,” Francisco Blanch, the lead global commodities and derivatives analyst at Bank of America Merrill Lynch Global Research, told CNBC.
“We could start to see the pressure building as soon as Congress and the Senate give [President Barack] Obama greater backing on the Iran deal,” Blanch added. “The second thing is how much are Iranian volumes going to ramp up on a forward basis as domestic production increases again.”
The Saudis have been raising their oil price point for Asian customers in anticipation of a break-through in the Iran negotiations — after selling oil at a discount to Asia to keep their market share. The Saudis say that demand for oil is increasing, but it’s unclear if demand from China and other growing markets can be sustained.
The Saudis convinced other OPEC members last year not to cut production to raise prices, despite cries from Iran and Venezuela to boost crude prices. Saudi oil revenues are taking a hit, but the kingdom should have sufficient currency reserves to last for months with lower prices.
“With the increase in U.S. production, the United States produced nearly twice the petroleum and natural gas hydrocarbons as produced by Saudi Arabia in 2014,” EIA notes.
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