The best is yet to come for US oil production—but it will be a short-lived hurrah, according to Ian Taylor, head of oil trading giant Vitol.
US oil production has steadily increased throughout 2017 as US drillers regained their footing after the oil price crash. What started out at 8.946 million bpd of crude oil production in the first week of January has now reached an average of 9.561 million bpd as of September 29, according to the EIA.
The EIA is expecting US oil production to reach 9.8 million bpd in 2018, according to the latest Short Term Energy Outlook.
US crude oil exports, too, have taken the world by storm, particularly over the last couple of weeks, as traders seize an opportunity created by the extra wide spread between WTI and Brent, which as of the latter part of September, reached $7 per barrel, according to data provided by S&P Global Platts.
These US exports are now flooding the global market—a global market that is still oil-heavy as OPEC members—well, most OPEC members—continue to dutifully curb oil production to alleviate the overhang. That overhang is smaller today than it was in December 2016—in fact, 130 million barrels smaller, according to OPEC Secretary General Mohammad Barkindo, but is still 171 million barrels too heavy as of August.
Still, Vitol feels that the current U.S. crude oil production growth is unsustainable beyond 2018.
Vitol is anticipating an increase in US crude production of 0.5 to 0.6 million bpd in 2018, at which point the increase in production would cause cost inflation, rendering at least some of today’s current production projects unprofitable. And according to Vitol, some are barely profitable as it is.
“If you look at the economics on most of the big Permian players, not many of them make a lot of money,” Taylor said, speaking to Reuters.
For now, Vitol is expecting “boringly rangebound” prices, but eventually, the expected slowdown in production, along with “robust” demand growth, will inevitably push up prices past that stubborn $50-$60 level.
