Shale executives have gone to great lengths to convince investors that they will not drill aggressively now that oil prices have rallied into the $60s. But in a new report released on Tuesday, the EIA essentially said that those assurances are just a lot of hot air.
The EIA’s Short-Term Energy Outlook predicted that U.S. oil production would top 11 million barrels per day (mb/d) this year. Last month, the agency said that the U.S. wouldn’t hit that threshold until November 2019.
The revision from just a few weeks ago is dramatic. In January the EIA estimated that the U.S. would surpass 10 mb/d at some point in February. But recently published data shows that the U.S. actually hit that milestone last November, and now, the agency says the U.S. actually averaged 10.2 mb/d in January.
On an annual basis, the U.S. produced 9.3 mb/d last year, a figure that is set to jump to 10.6 mb/d for 2018. Things slow down a bit in 2019, with an average of 11.2 mb/d.
What do we make of all of this? Well, the shale industry is clearly drilling at a frenzied pace, with an increasing concentration in the Permian basin. The rig count continues to rise in the Permian, while remaining mostly flat elsewhere. So far, the Permian has shown no signs of slowing down, despite some evidence of bottlenecking and cost inflation. Production continues to rise at a scorching rate.
The big question at this point is how rapidly expanding shale production will interact with the pace of inventory builds/declines and the OPEC production limits. Some analysts, including Goldman Sachs and S&P Global Platts, recently raised the prospect of OPEC tightening the oil market too much, allowing inventories to drain well below the five-year average.
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