EIA Increases US Oil Production Forecast for 2017 and Oil Prices

EIA Increases US Oil Production Forecast for 2017 and Oil Prices
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The EIA has raised the country’s oil production forecast for 2017, noting that the rise in oil prices will push up investment in the sector.

The forecast was raised to 8.19 million barrels per day (b/s) from 8.04 million b/s, expected in April.

The forecast for oil production for 2016 remained unchanged at 8.6 million b/d.

EIA forecasts: exact digits

Energy Information Administration (EIA) of the US Department of Energy again raised the forecast for oil production in the US, as companies continue to increase drilling activity in the hope of rising prices. According to the forecast, oil production in the US in 2017 will average 9 million barrels per day, while the December forecast assumed 8.8 million barrels per day, and the August forecast – 8.3 million barrels per day. The forecasts are boosted by expectations of an increase in oil production in the Gulf of Mexico and an increase in production efficiency at shale deposits, analysts said. According to EIA forecasts, this year average oil prices will amount to 53 dollars against the average of last year’s level of 43 dollars.

Henry hub oil price: about the reasons for the data change

As a result of hurricane “Harvey” in recent weeks, the US energy market has suffered significant disruptions. Uncertainty over the time it will take to restore the normal operations of oil companies, refineries, pipelines, terminals, and oil transportation infrastructure creates difficulties for forecasting the dynamics of oil prices in the coming days and months, the report said. It is noted that the forecast does not take into account the consequences of the hurricane “Irma”, which hit the southwestern part of Florida.

On what do these price fluctuations depend and under what circumstances can they stabilize? Experts unanimously tell three main reasons for the drop in oil in the world market:

  • increase in production volumes. 2014 was a record in the history of the United States: the volume of oil produced was 8.7 million barrels per day. Since 2008, the US from a net oil importer has become a net exporter. This was due to the development of shale deposits, which produced a real revolution in the market. Although by 2017, the excitement subsided and the flow of investment in shale oil was interrupted, Iran entered the world market. The curve of supply and demand has made its dirty business, and with a large amount of product, the price has crawled down. It should be said that at the moment the experts’ forecasts about the possibility of spontaneous damping of the slate revolution have been confirmed. The deposits developed with the help of new technologies are rapidly depleted. Infinite increase in the number of wells is impossible even in American deserts. In addition, “shale” hydrocarbons have a rather high production cost – in the range of $45-50, which means that too low world prices are fatal for this type of production
  • reduction of energy consumption in a number of countries, primarily in China, associated with a decline in economic growth
  • instability of the world political situation. The war in Syria, the withdrawal of Britain from the European Union, unresolved conflicts in Ukraine cause a blow to the economy in various countries, and this inevitably affects the prices of energy carriers.
  • it is impossible to exclude the impact on quotes of oil and natural disasters. For example, history knows cases when oil supplies were prevented by sandstorms in Iraq, while the drought in Brazil and the cooling in the US demanded more fuel consumption.