Crude oil production in the United States increased in 8 of the past 10 years. In 2020, however, responses to COVID-19 contributed to the rapid decline in demand for refined petroleum products. As a result, crude oil prices fell to their lowest annual average since 2003, refinery runs decreased, and crude oil production was curtailed, which is documented in the complete set of final 2020 monthly data in the U.S. Energy Information Administration’s (EIA) recently released Petroleum Supply Monthly (Figure 1). Crude oil production in the United States in 2020 fell to its lowest monthly average during May when it was 10.0 million barrels per day (b/d), and it remained less than 11.0 million b/d until November. In 2020, U.S. crude oil production averaged 11.3 million b/d, 0.9 million b/d less than in 2019.
Prices for West Texas Intermediate (WTI) crude oil averaged $58 per barrel (b) in January 2020 and $51/b in February. On March 13, President Trump declared a national emergency in the United States because of the COVID-19 outbreak. Responses to the pandemic reduced demand for refined petroleum products and crude oil, driving the WTI price down to $30/b in March. On April 20, WTI front-month futures prices closed at a negative $38/b, marking the first day the price for the WTI futures contract fell to less than zero since trading began in 1983.
As petroleum product demand fell, refiners in the United States limited runs. From March to April 2020, gross inputs into refineries fell from 15.8 million b/d to 13.3 million b/d, the largest monthly decline in EIA data (going back to 1985) and the lowest level since September 2008 (Figure 2). After reaching the annual low in April, gross inputs increased, averaging 14.4 million b/d in the second half of 2020. Gross inputs averaged 14.7 million b/d in 2020, down from 17.0 million b/d in 2019 and the lowest level since 2009.
The response to the rapid drop in demand was slower for crude oil production than for refining, so commercial crude oil inventories in the United States increased, reaching a high of 531.9 million barrels in June, the highest level since March 2017. Perhaps more significant than the overall inventory levels was the pace of growth; inventories grew by 46.7 million barrels between March and April, the largest monthly increase in EIA data (going back to 1920).
High inventories and low prices pushed U.S. crude oil production down from an average of 12.7 million b/d in March (when the national emergency was declared) to 12.0 million b/d in April. Production continued to decline in May, falling 1.9 million b/d (17%), the largest monthly decline in EIA history (dating back to 1920). To reduce production, U.S. producers completed fewer new wells (normally required to offset declining well production), reduced (but did not completely halt) production from wells, or completely shut in wells. In June 2020, crude oil prices rose by $10/b and remained between $38/b and $42/b through November, and several factors began to indicate some increase in crude oil production activity.
Oil-directed rig counts in the United States, which reflect crude oil drilling activity, fell from 683 rigs the week of March 13 to 172 rigs the week of August 14 (the lowest level since July 15, 2005). Rig counts typically follow changes in the WTI price with about a four-month lag. The decrease in rig counts in 2020, however, occurred much more quickly, reflecting the sudden decline in petroleum demand and reduced producer activity. After August 14, rig counts generally began increasing, reaching 264 rigs the week of December 25. Rig counts have continued to increase in 2021, reaching 309 rigs the week of February 26 (Figure 3).
The set of equipment used for hydraulic fracturing—referred to as frac spreads, or frac fleets—have also increased in number. According to Primary Vision, frac spreads fell to a low of 45 in May 2020 and fluctuated between 53 and 80 from May 29 through August 14. The number of frac spreads began to increase after August 14, reaching 136 during the week of December 25. Similar to rig counts, frac spreads have continued to increase in 2021, reaching a recent high of 175 the week of February 5. The week of February 19, however, the number of frac spreads fell to 41, likely because of the cold weather that affected many oil producing regions, particularly in Texas. The number of frac spreads increased the following week to 140.
The increase in frac spreads since August suggests producers began completing more wells, which reduced the number of drilled but uncompleted wells (DUCs). DUCs are wells that have been drilled but have not undergone completion activities and are not yet producing oil or gas. DUCs provide producers an inventory that can be used to increase production without increasing rig counts. According to EIA’s Drilling Productivity Report (which covers the Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara, and Permian regions), the number of DUCs in 2020 remained relatively stable (at about 8,000) from January through July. Beginning in August 2020, however, the number of DUCs began decreasing, falling to 7,336 in December, indicating that producers were completing wells for production (Figure 4).
Despite the increasing drilling and well completion activity, overall U.S. production levels remained relatively flat, averaging 10.7 million b/d from June through October. The increased production activity most likely offset well production declines to keep overall production relatively flat. Weather-related outages also limited offshore production during this period. In November and December, crude oil production increased slightly, averaging 11.1 million b/d.
The price of WTI increased from $47/b in December 2020 to $52/b in January 2021 and $59/b in February 2021. According to the Dallas Fed Energy Survey for third-quarter 2020, 43% of the oil and gas industry executives surveyed said they expected U.S. oil rig counts to increase if the price of WTI were $51–$55 per barrel, and an additional 29% indicated they expected rig counts to increase if the price of WTI were $56–$60 per barrel. Similarly, 36% of executives expected increased DUC completions (the number of DUCs to decrease) if the price of WTI were $46–$50 per barrel, and an additional 28% expected an increase if WTI were $51–$55 per barrel. EIA expects that the relatively high price of crude oil will lead to more U.S. crude oil production later in the year. In the February Short-Term Energy Outlook, EIA projected that U.S. crude oil production will increase from 11.0 million b/d in the first quarter of 2021 to 11.2 million b/d in the fourth quarter.
U.S. average regular gasoline and diesel prices increase
The U.S. average regular gasoline retail price increased nearly 8 cents to $2.71 per gallon on March 1, 29 cents higher than the same time last year. The Rocky Mountain and West Coast prices each increased nearly 13 cents to $2.57 per gallon and $3.28 per gallon, respectively, the Midwest price increased 10 cents to $2.66 per gallon, the Gulf Coast price increased 7 cents to $2.41 per gallon, and the East Coast price increased nearly 5 cents to $2.65 per gallon.
The U.S. average diesel fuel price increased nearly 10 cents to $3.07 per gallon on March 1, 22 cents higher than a year ago. The Rocky Mountain price increased nearly 13 cents to $2.98 per gallon, the Gulf Coast price increased nearly 12 cents to $2.84 per gallon, the West Coast price increased nearly 11 cents to $3.54 per gallon, the Midwest price increased nearly 10 cents to $3.04 per gallon, and the East Coast price increased more than 8 cents to $3.08 per gallon.
Propane/propylene inventories decline
U.S. propane/propylene stocks decreased by 2.2 million barrels last week to 41.2 million barrels as of February 26, 2021, 8.7 million barrels (17.4%) less than the five-year (2016-2020) average inventory levels for this same time of year. Gulf Coast, Midwest, Rocky Mountain/West Coast, and East Coast inventories declined by 1.0 million barrels, 0.8 million barrels, 0.4 million barrels, and 0.1 million barrels, respectively.
Residential heating fuel prices increase
As of March 1, 2021, residential heating oil prices averaged nearly $2.86 per gallon, 5 cents per gallon higher than last week’s price and almost 4 cents per gallon higher than last year’s price at this time. Wholesale heating oil prices averaged more than $1.98 per gallon, nearly 3 cents per gallon above last week’s price and almost 38 cents per gallon above last year’s price.
Residential propane prices averaged nearly $2.51 per gallon, more than 1 cent per gallon higher than last week’s price and almost 54 cents per gallon above last year’s price. Wholesale propane prices averaged nearly $1.28 per gallon, almost 20 cents per gallon below last week’s price but nearly 71 cents per gallon above last year’s price.
|Retail prices||Change from last|
|Click to chart this seriesGasoline||2.711||0.078up-arrow||0.288up-arrow|
|Click to chart this seriesDiesel||3.072||0.099up-arrow||0.221up-arrow|
|Click to chart this seriesHeating Oil||2.858||0.050up-arrow||0.037up-arrow|
|Click to chart this seriesPropane||2.505||0.013up-arrow||0.537up-arrow|
|Futures prices||Change from last|
|Click to chart this seriesCrude oil||61.50||2.26up-arrow||16.74up-arrow|
|Click to chart this seriesGasoline||1.877||0.070up-arrow||0.481up-arrow|
|Click to chart this seriesHeating oil||1.857||0.034up-arrow||0.366up-arrow|
|*Note: Crude oil price in dollars per barrel.|
|Stocks||Change from last|
|Click to chart this seriesCrude oil||484.6||21.6up-arrow||40.5up-arrow|
|Click to chart this seriesGasoline||243.5||-13.6down-arrow||-8.6down-arrow|
|Click to chart this seriesDistillate||143.0||-9.7down-arrow||8.5up-arrow|
|Click to chart this seriesPropane||41.246||-2.246down-arrow||-23.311down-arrow|