Following a deadlock in OPEC+ negotiations at the July 2021 meeting, oil prices briefly rose above $75 per barrel at the prospect of the alliance keeping output stable from August onwards, with producers in theory honoring their commitment to the original deal until a new way forward is agreed. As global oil demand is set to grow significantly, such a development would lead to a production deficit and Rystad Energy examined whether or not U.S. shale can rise to the occasion and fill the imminent supply gap.
During the busy summer season global demand for oil typically rises, and as countries loosen lockdowns and reopen, the demand push also increases the “call on OPEC+”, or the number of barrels the oil market would require from OPEC+ producers to be at a theoretical perfect equilibrium, meaning inventories neither draw nor build. For August, Rystad Energy forecasts that the global market needs an extra 1.6 million barrels per day (bpd) of supply to be at this theoretical equilibrium.
Despite the price surge that this undersupply prospect is creating, Rystad Energy’s analysis reveals that U.S. supply will only marginally increase this summer, nowhere close to filling the gap that potential OPEC+ inaction would create. Should U.S. shale operators follow the price signal and decide to increase production, it would take at least nine months to see a meaningful supply result. Therefore, boosting output carries a considerable risk due to the volatility that surrounds oil demand and price trajectories.
Rystad Energy data show that U.S. crude oil output reached about 11.45 million bpd in June 2021. Despite the bullish conditions, it is only forecast to grow by 60,000 bpd to 11.51 million bpd in July, remaining at the same level in August. A dip is then expected in September and October to 11.34 million bpd and 11.41 million bpd, respectively.
A constant, albeit slow growth trajectory will commence in November 2021, when crude output is expected to rise back to 11.55 million bpd, then closing the year with 11.62 million bpd in December. From January 2022 onwards output will continue to rise, breaking the 12 million bpd monthly average only from October that year.
Texas and New Mexico are expected to drive nearly all oil production growth from the second half of 2021 through 2023, while the rest of the country is set to remain in a maintenance mode, producing around 5.3 million bpd to 5.4 million bpd over the coming years.
Despite the continuous growth, U.S. monthly output in 2022-2023 is not expected to match the record 12.9 million bpd achieved in 2019, as WTI prices are not forecast to remain at the current high levels. There is, however, some upside potential if volatility continues, and if the currently robust WTI price environment pushes into next year, the forecast could be subject to revisions, Rystad said.