EIA forecasts U.S. crude oil production will keep growing through 2021, but more slowly
In the January 2020 update of its Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts that U.S. crude oil production will average 13.3 million barrels per day (b/d) in 2020, a 9% increase from 2019 production levels, and 13.7 million b/d in 2021, a 3% increase from 2020.
U.S. crude oil production growth slows because of a decline in drilling rigs during the past year. EIA expects this trend will continue through most of 2020. Despite the decline in rigs, EIA forecasts production will continue to grow as rig efficiency and well-level productivity rise, offsetting the decline in the number of rigs until drilling activity accelerates in 2021.
EIA’s U.S. crude oil production forecast is based on the West Texas Intermediate (WTI) price forecast in the January 2020 STEO, which rises from an average of $57 per barrel (b) in 2019 to an average of $59/b in 2020 and $62/b in 2021. The price forecast is highly uncertain, and any significant divergence of actual prices from the projected price path could change the pace of drilling and new well completion, which would, in turn, affect production.
Crude oil production in the Lower 48 states has a relatively short investment and production cycle. Changes in Lower 48 crude oil production typically follow changes in crude oil prices and rig counts with about a four- to six-month lag. Because EIA forecasts WTI prices will decline during the first half of 2020 but begin increasing in the second half of the year and into 2021, EIA forecasts U.S. crude oil production will grow slowly until the end of 2020.
Crude oil production in Alaska and the Federal Offshore Gulf of Mexico—which collectively accounted for about 19% of U.S. total crude oil production in 2019—is driven by long-term investment that is typically less sensitive to short-term price movements.
Once final data are available, EIA expects the data will show that Lower 48 crude oil production reached its largest annual average volume of 9.9 million b/d, and EIA expects it to increase further by an average of 1.0 million b/d in 2020 and 0.4 million b/d in 2021.
EIA forecasts that production from the Federal Offshore Gulf of Mexico will grow by 0.1 million b/d in 2020 to 2.0 million b/d and to remain relatively flat in 2021 because several projects expected to come online in 2021 will not start producing until late in the year and will be offset by declines from other producing fields. Alaska’s crude oil production will remain relatively unchanged at about 0.5 million b/d in both 2020 and 2021.
The Permian region that spans western Texas and eastern New Mexico remains the most prolific crude oil production growth region in the United States. Favorable geology combined with technological improvements have contributed to the Permian region’s high returns on investment and years of remaining oil production growth potential.
EIA forecasts that Permian crude oil production will average 5.2 million b/d in 2020, an increase of 0.8 million b/d from 2019 production levels. For 2021, the Permian region will produce an average of 5.6 million b/d. EIA forecasts that the Bakken region in North Dakota will be the second-largest growth area in 2020 and 2021, growing by about 0.1 million b/d in each year.
Principal contributors: Jeff Barron, Naser Ameen