Higher well productivity and crude oil prices drive U.S. crude oil production forecast

We revised up our forecast for U.S. crude oil production in the Lower 48 states (L48) in 2023 and 2024 in our August Short-Term Energy Outlook (STEO). Our increased production outlook reflects higher well productivity in recent historical data from the Petroleum Supply Monthly, which we have used to revise our forecast through 2023. Our forecast for higher crude oil prices beginning in July 2023 and continuing into 2024 supports crude oil production increases in 2024. The effects of the higher prices don’t affect the forecast until 2024 because rig additions and production take several months to respond to changes in prices. In our August STEO, we forecast that L48 crude oil production in the second half of 2023 (2H23) will average 10.6 million barrels per day (b/d), up 360,000 b/d from our forecast in the July STEO. Our forecast for L48 crude oil production in 2024 increased by a slightly smaller amount to 10.8 million b/d (Figure 1).

We estimate that the greater well-level productivity observed in recent data will increase L48 production through the end of 2023, before L48 crude oil production stabilizes near 10.7 million b/d in 1H24. We measure productivity by an average well’s monthly oil output, and the first few months a well is started up typically have the highest production rate, followed by naturally declining output in the following months. Production growth midway into our forecast slows because we assume that growth in well-level productivity will slow. Although growth in well-level productivity slows, our forecast for rising crude oil prices increases oil-directed rig activity in 2024. L48 crude oil production picks up in 2H24, surpassing 11.0 million b/d in December 2024.

According to Baker Hughes, 525 oil-directed rigs were active in the United States during the week of August 4, 2023, down 73 rigs compared with the same week last year. The number of active rigs in the Permian Basin totaled 320 as of August 4, down 24 rigs from the same week last year. However, increased well productivity has offset the decline in active rigs in 2023. In 2024, we expect the number of active rigs to increase, contributing to crude oil production growth in the second half of the year.

Crude oil production growth in the Permian region is driving crude oil production growth in the L48. We forecast that production in the Permian will increase by 430,000 b/d between January and December 2023. This increase is more than the forecast L48 production growth of 410,000 b/d during that period because production declines in other regions. Permian production will increase by 380,000 b/d between January and December 2024, accounting for 94% of forecast L48 production growth (Figure 2).

New wells in the United States have generally been increasingly productive over the last several years. Looking at the Permian region, the highest productivity came in 2021, but productivity in 2023 is nearly as high (Figure 3). The high productivity in 2021 was likely the result of oil production companies responding to changes in the markets driven by responses to the COVID-19 pandemic. As a result of the rapid shift in consumption patterns, many oil wells were shut in to reduce production as refinery runs and demand for fuel fell. Oil production companies kept only the most economical fields producing, increasing the production per well in 2021 beyond what may have occurred otherwise.

Permian production per well in 2023 between months 1 and 3 of initial operation is up compared with 2022. Production per well is up by 5% for the first and third months of operation; production in the second month is up by 11%, averaging 7% across the first three full months of operation. We consider the first full month of production as month 1. The 0 (zero) month corresponds to the initial start of production, which may not be a complete month because well start-ups do not always occur on the first day of the month. Well productivity in 2023 could be revised higher or lower depending on how productive wells are for the remainder of the year.

In the August STEO, we forecast that the price of Brent crude oil will average $87 per barrel (b) from August to December 2023, up from our July forecast of $79/b during that period. Crude oil prices increased primarily because of extended voluntary cuts to Saudi Arabia's crude oil production and expectations of higher global demand. We expect the production cuts, combined with increasing demand, will cause global oil inventories to fall and put upward pressure on oil prices through the end of this year (Figure 4). We forecast that global stock draws will 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. In the fourth quarter of 2023 (4Q23), we expect global stock draws will average 120,000 b/d and the price of Brent will reach $88/b in December. We expect global markets will be balanced and crude oil prices will be flat in 1Q24 and then begin to decrease in 2Q24 as global stocks begin to build, partially because of our higher forecast U.S. crude oil production growth. We forecast global inventory builds will average 210,000 b/d in 2024 and the price of Brent will average $86/b.

For questions about This Week in Petroleum, contact the Petroleum and Liquid Fuels Markets Team at 202-586-5840.