One Million Barrels a Day
The US is releasing a million barrels a day from reserves in hopes that oil production from US companies increase by that amount in time for those planned releases to stop. But what if it doesn't?
The Energy Information Administration(EIA) is the gold standard when it comes to sourcing energy data and trying to piece together the supply and demand of such a complex sector. Bar none, it is the starting place for most analysts but not the end all be all of data and for good reason. Coal, Nuclear, Natural Gas, Petroleum, Bio Fuels, Wind, and Solar, they cover a vast variety of power sources but in more recent years the EIA has gotten a lot wrong and seemingly more under the influence of being a political arm for the direction energy policy is enacted.
With promises of a renewable future being the core focus as fossil fuels are eliminated, the timeline of the agencies post seem to teeter on the side of parody as we progress forward. Fatih Birol of the IEA utilizes the twitter platform like many of us shit posting our agenda from his tweets on Net Zero goals leading into COP26 , record breaking additions of renewables, and other goals of massive development plans for clean energy over the coming decades. Yet in between those same tweets another story begins to unfold and its a scene straight out of an apocalyptical movie with worries of how much leverage Russia has on Europe’s energy supplies to how to reduce energy consumption to survive.
Energy waste in many parts of the first world is without a doubt a huge problem and making changes that could be dramatically beneficial to the world not being short energy should be on everyone’s radar. However, there is a large portion of the population still living without adequate energy sources to live a modern lifestyle and more power sources will be needed. With the world short on energy, one position that the EIA has taken along with the Whitehouse is that one million barrels of oil a day will be added to the global supply from US Shale producers near the end of the year. In a recent briefing from the Whitehouse, President Biden reiterated his belief that the US is on track to hit record production. However, recent EIA data is telling a different story with May output slipping 0.5% to the lowest since February and at a time when the price of oil is still flirting daily with $100.
Back in March of 2022 the Whitehouse stated in a briefing that they estimate an additional million barrels of oil a day added to supply by the third quarter of this year. The statement was inline with the ending of the Strategic Petroleum Reserves record release of a million barrels a day in hopes that the additional supply would continue after the government has ran out of bullets to suppress the risk premium being added to global oil prices.
This months EIA 914 report released from July 29, 2022 shows production remaining flat and still well under the record production mentioned by President Biden.
Digging into the Railroad Commission(RRC) data also gives almost zero validity to the claims of an additional million barrels coming by end of year from US shale producers. Monthly totals hit their peak in October of 2021 when Drilled Uncompleted Well(DUC) inventory was being drawn down at a fast pace to capitalize on higher oil prices. From those highs to the most recent months available full reporting shows a loss of 687k barrels per month of supply coming from the US, the complete opposite direction promised by the Whitehouse.
The recent 914 report highlights a few key items:
Global oil inventories in the forecast rise by 0.8 million barrels per day (b/d) in 2022 and remain unchanged in 2023
Expect global consumption of liquid fuels will grow by 2.2 million b/d in 2022 and by 2.0 million b/d in 2023
Forecast that OPEC crude oil production will rise by 2.4 million b/d to average 28.7 million b/d in 2022 and will further increase to 29.3 million b/d in 2023
U.S. crude oil production in our forecast averages 11.9 million b/d in 2022 and 12.8 million b/d in 2023
Looking at the data from the RRC it seems obvious that the production from the US cannot grow to the current forecasts the EIA has suggested. With the US being the largest swing producer of oil in recent years and the only country able to bring on relatively quick supply, total oil production will be very short the expected global consumption growth projected by the agency.
Back in February the EIA forecasted an increase of about 200k barrels per day coming from the Permian with added rigs still focused on that basin. With the majority of growth on land coming from the Permian due to the higher tier wells this additional production is a drop in the barrel to what the world may be short in the coming months based on the above growth estimates.
The EIA has been wrong many times historically and would require a whole different article to cover even just the newsworthy headliners from the organization. Yet with the obvious gaps shown between demand and supply and price caps on Russia being proposed, its hard to see OPEC+ or US Shale coming to the rescue of the short-sighted projections and policy fixes of the SPR by end of year. We are still in an energy crisis and no amount of sugar coating keeps the lights on and the economy moving.
Great post as usual. Barring a severe global recession demand is simply increasing with supply constraints built in (i.e., discouragement of drilling in recent years). As India and China and the U.S. economies grow - however slowly - demand will keep a floor on crude. Moreover, notice how air travel is doing well and there are new routes being planned for next year by multiple airlines. This will add to demand as well possibly substantially. Yes, Broncho astuteley points ut the EIA has been consistently wrong. I recall they predicted peak oil years ago. Did not happen.