The August Short-Term Energy Outlook (STEO) has revised upwards the forecast for U.S. crude oil production in the Lower 48 states (L48) for 2023 and 2024. The increase in the production outlook is attributed to higher well productivity based on recent historical data from the Petroleum Supply Monthly. This updated data has led to a revision of the production forecast for 2023, while the forecast for higher crude oil prices starting from July 2023 and continuing into 2024 is supporting increased production levels for the following year.
The effects of these higher prices are not expected to impact the forecast until 2024, as it takes time for rig additions and production to respond to changes in prices. The August STEO predicts that L48 crude oil production in the second half of 2023 will average 10.6 million barrels per day (b/d), a 360,000 b/d increase compared to the July STEO forecast. For 2024, the forecasted L48 crude oil production has increased slightly more to 10.8 million b/d. It is anticipated that the observed greater well-level productivity from recent data will drive L48 production growth until the end of 2023, after which it is expected to stabilize around 10.7 million b/d in the first half of 2024.
Well productivity is measured by the monthly oil output of an average well. The initial months of well startup usually experience the highest production rate, followed by a natural decline in the subsequent months. The growth in well-level productivity is expected to slow, leading to a deceleration in production growth midway through the forecast period. Despite this slowdown, the forecasted rise in crude oil prices is predicted to stimulate oil-directed rig activity in 2024, which is expected to lead to increased production. As a result, L48 crude oil production is projected to pick up in the second half of 2024, surpassing 11.0 million b/d by December of that year.
In terms of rig activity, data from Baker Hughes indicates that there were 525 oil-directed rigs active in the U.S. during the week of August 4, 2023. This number reflects a decrease of 73 rigs compared to the same week in the previous year. Specifically, in the Permian Basin, there were 320 active rigs as of August 4, marking a decrease of 24 rigs compared to the same week the previous year. Despite these declines in active rigs, increased well productivity has managed to offset the reduction in rig counts throughout 2023. Looking ahead to 2024, the forecast suggests that the number of active rigs will increase, contributing to growth in crude oil production in the latter half of the year.
The growth in crude oil production in the L48 region is largely driven by the increase in production from the Permian region. The forecast anticipates a production growth of 430,000 b/d between January and December 2023 in the Permian, which is greater than the overall L48 production growth of 410,000 b/d during the same period. This is because production declines are projected in other regions. In 2024, it is expected that Permian production will further increase by 380,000 b/d between January and December, accounting for a significant portion (94%) of the forecasted L48 production growth.
The productivity of new wells in the United States has been consistently improving over the past several years. Notably, the highest productivity was observed in 2021, likely influenced by oil production companies’ responses to the market changes driven by the COVID-19 pandemic. In 2023, productivity remains high, close to the levels seen in 2021. The rapid shift in consumption patterns due to the pandemic led to the shutdown of less economical oil wells, resulting in higher production per well in 2021. In 2023, the initial production months of wells have shown increased productivity compared to 2022, indicating a positive trend.
The August STEO forecasts an average Brent crude oil price of $87 per barrel from August to December 2023, up from the previous July forecast of $79/b for the same period. This increase in crude oil prices is attributed to extended voluntary cuts in Saudi Arabia’s crude oil production and expectations of higher global demand. The combination of production cuts and growing demand is predicted to lead to a decrease in global oil inventories, thereby exerting upward pressure on oil prices throughout the rest of the year. The forecast expects global stock draws to average 520,000 b/d in August and 1.4 million b/d in September, contributing to sustained oil prices in the mid-$80s during that period. For the fourth quarter of 2023, it is projected that global stock draws will average 120,000 b/d, with the price of Brent reaching $88/b in December. The global oil market is expected to remain balanced, resulting in flat crude oil prices in the first quarter of 2024, followed by a decrease in the second quarter as global stocks begin to build. The forecast anticipates an average global inventory build of 210,000 b/d in 2024, with Brent crude oil prices averaging $86/b for that year.