Chartbook: U.S. oil drilling activity
In this instance, WTI futures peaked at the start of June 2022, when they were more than 70% higher than at the same time a year before. The number of rigs drilling for oil peaked in late November, roughly 25 weeks after prices peaked, slightly longer than average. Since June 2022, however, prices have generally retreated, which has been reflected in a gradual turnover in drilling activity rates. Prices are roughly 15% below year-ago levels and still trending lower, implying drilling is likely to continue falling through end of June 2023. Once drilling is finished, there is a further delay of six months on average for casing, pressure pumping, installation of surface equipment, flow testing, linking up to the pipeline network and entering commercial production. The current slowdown in drilling is therefore likely to reduce production growth through the end of 2023 and probably into 2024. The Energy Information Administration (EIA) forecasts U.S. production will be only 340,000 barrels per day (2.7%) higher in December 2023 than it was in December 2022. If this forecast is realised, growth will have halved from 660,000 barrels per day (5.8%) in December 2022 compared with December 2021 (“Short-term energy outlook”, EIA, Feb. 7, 2023). Growth would be just one-sixth of what it was at the height of the second shale drilling boom in 2018, marking the end of the shale revolution. Slower growth in U.S. production will reduce any accumulation of crude inventories, even if the global economy slows this year, and restrict the potential for non-inflationary growth in the remainder of 2023 and 2024.
Related columns: - U.S. oil production’s post-pandemic rebound set to slow (Reuters, December 2, 2022) - Is the U.S. shale oil revolution over? (Reuters, November 22, 2022) - U.S. oil drilling rises in response to higher prices (Reuters, February 25, 2022)
John Kemp is a Reuters market analyst. The views expressed are his own (Editing by Barbara Lewis)
