US touts output cut projection before Opec+ meeting

The US administration is using the Energy Information Administration's (EIA) projection of a sharp decrease in the domestic oil output to push back against proposals for a US production cut pledge ahead of the Opec+ meeting on 9 April.

The EIA, in its latest Short-Term Energy Outlook released today, projected that US output will average 470,000 b/d lower this year from 2019, with a further 730,000 b/d decline next year — bringing production in 2021 to 11.03mn b/d, just above the 2018 levels.

"The EIA report today demonstrates that there are already projected cuts of 2mn b/d, without any intervention from the federal government," the Energy Department said. "The private sector and the free market are driving those cuts."

Declines projected by the EIA amount to 1.2mn b/d between 2019- 2021 on an annualized basis — but the Energy Department appears to be using a different metric to reach the 2mn b/d number. The EIA outlook projets a 1.77mn b/d decline in the first quarter of 2021 from the same period this year. And the EIA's preliminary weekly supply estimates peg US crude production at 13mn b/d at the end of March — so US production from its peak this year to the trough next year could fall by more than 2mn b/d. Production cuts could add up quickly as shale operators stop drilling and completing new wells. Shale oil wells decline by 65-85pc in their first year of operations, consultancy IHS Markit said in December.

But the EIA expectation of sharp cuts in US production is based on an assumption that Opec+ members will not resume their production cuts agreement. The EIA said it would incorporate a possible resumption of the Opec+ agreement in a subsequent release.

The US administration is encouraging Opec+ members to announce production cuts at their emergency meeting on 9 April but says it will make no pledges on behalf of US producers. Opec+ invited the US, together with other oil producing countries, to participate in the 9 April discussion. US energy secretary Dan Brouillette said yesterday the US will not directly participate.

Brouillette, instead, will take part in a virtual G20 energy ministerial on 10 April that Saudi Arabia will host in its capacity as this year's chair of the G20 group of major economies.

US oil industry officials are playing up the idea they are contributing toward global production cuts. American Petroleum Institute president Mike Sommers this week said 25-30pc of US crude production was starting to "go off line" as a result of lower prices rather than government intervention. The trade group said Sommers was referencing an IEA report on global cuts in spending on new production.

US midcontinent oil producers have slashed their drilling and business activity in the first quarter, according to a survey the Federal Reserve Bank of Kansas City released today of 37 energy companies in Colorado, New Mexico, Oklahoma and neighboring states. Crude prices would have to increase to $47/bl, on average, for the companies to be profitable, they said.

One of the producers in the survey predicted "massive consolidation and insolvency" if crude prices stay around $30/bl over the long term. Another said prices of $40/bl were "not enough" for many oil producers to survive. Of those surveyed, 83pc said they reduced drilling activity and 59pc cut staffing in the first quarter.

By Haik Gugarats and Chris Knight