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Highlights

US oil output expected to cross 10 million b/d threshold

Wider Brent-WTI spread expected to boost US exports

Demand expected to outpace supply this year only

Washington — US crude oil production will, for the first time in nearly 50 years, climb to 10 million b/d by March 2018, the US Energy Information Administration said Tuesday.

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Such a level would mark the highest daily US production rate since November 1970, when production climbed to nearly 10.05 million b/d and averaged about 9.64 million b/d for that year, according to government data. The November 1970 figure remains the all-time high.

"Increased drilling activity in US tight oil basins, especially those located in Texas, is the main contributor to oil production growth, as the total number of active rigs drilling for oil in the United States has more than doubled over the past 12 months," Howard Gruenspecht, the EIA's acting administrator, said in a statement.

In its latest Short-Term Energy Outlook, EIA said it sees US crude output averaging 9.33 million b/d this year and 10.01 million b/d in 2018.

"Growth in US production has been the largest contributor to the 800,000 b/d of non-OPEC liquids supply growth from January through May 2017," the EIA said in its report.



"Continued increases in drilling activity in US shale basins, particularly a recent resumption in production growth from the Eagle Ford region in Texas, support production growth throughout the forecast," it said.

The number of US oil-directed active rigs fell as low as 316 in May 2016, but has since more than doubled to 733 rigs this month.


PRICES

  • EIA expects the increase in domestic production will lower WTI crude prices in Cushing, Oklahoma, compared with Brent, creating a wider Brent-WTI price spread, which could open additional opportunities for US producers to export light sweet crude, EIA said.
  • The Brent premium to WTI was as high as $2.94/b on May 19, a 17-month high. That differential is expected to average $1.91/b this year and $2/b next year, EIA said.
  • WTI and Brent spot prices are expected to average $50.78/b and $52.69/b, respectively, in 2017, up from $43.33/b and $43.74/b, respectively, in 2016. In April, EIA forecast WTI and Brent would each average about 10 cents/b less in 2017.
  • The EIA forecasts WTI and Brent will average $53.61/b and $55.61/b in 2018, both down $1.49/b from last month's estimate.
  • The decline in the 2018 forecast was due to the "possibility of a return to modest oversupply in global oil markets," EIA said. "However, some upward price pressures could emerge in the second half of 2018 if EIA's forecast that global inventories will decline during that period materializes and if the market expects global oil inventory withdrawals into 2019."

SUPPLY

  • Production in the Lower 48 states, which fell as low as 6.61 million b/d in September 2016, climbed to 7.01 million b/d in May and is now forecast to reach 7.8 million b/d by December 2018, according to EIA.
  • Production in US Gulf of Mexico waters, which dipped to 1.51 million b/d in September 2016, climbed to 1.74 million b/d in May and is forecast to hit 1.98 million b/d by the end of 2018.
  • Alaskan production, which averaged 460,000 b/d in May, is expected to hold relatively steady through 2018, falling as low as 430,000 b/d and climbing as high as 510,000 b/d, EIA said.
  • OPEC production is forecast to average 32.30 million b/d in 2017 and 32.77 million b/d in 2018, compared with a 32.53 million b/d 2016 average, and down 160,000 b/d and 640,000 b/d, respectively, from EIA's forecast last month due to the extension of OPEC's supply cut agreement through March.
  • Total OPEC crude production climbed as high as 33.28 million b/d in November 2016 and averaged 32.12 million b/d in May, compared with 31.73 million b/d in April.
  • An S&P Global Platts survey released Tuesday also found that OPEC crude output in May averaged 32.12 million b/d.
  • EIA forecasts OPEC supply will climb, albeit unsteadily, through 2018, climbing as high as 32.95 million b/d in July 2018 from 32.45 million b/d this month.
  • Crude production in Saudi Arabia, which hit 10.63 million b/d in July 2016, averaged 10.03 million b/d in May, up from 9.98 million b/d in April, according to the EIA. Saudi output averaged 10.42 million b/d in 2016, up from 9.65 million b/d in 2013.
  • Libyan crude production, which fell to 290,000 b/d in May 2016, climbed to 780,000 b/d last month, compared with 540,000 b/d in April.

DEMAND

  • EIA forecasts that in 2017 the world will produce 98.3 million b/d of global liquid fuels, 160,000 b/d less than it is expected to consume. This would be a reversal of a recent trend of supply outstripping demand amid a global crude glut.
  • In 2016, production was 250,000 b/d higher than consumption and 1.34 million b/d above demand in 2015.
  • The reversal in the supply/demand balance may be short-lived. In 2018, EIA projects the world will produce 110.16 million b/d of liquid fuels, 80,000 more than it is expected to consume.
  • US motor gasoline consumption is forecast to climb from 9.34 million b/d in 2017 to 9.37 million b/d in 2018. US motor gasoline consumption averaged 9.33 million b/d in 2016.

--Brian Scheid, brian.scheid@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com