U.S. oil production will fall this year for the first time since 2016 as economic activity and demand for transportation fuels have cratered due to the coronavirus pandemic, causing a historic price crash.
The Energy Information Administration, the statistics arm of the Department of Energy, projected Tuesday that U.S. crude production will average 11.8 million barrels per day in 2020, down 500,000 barrels per day from 2019. The EIA expects U.S. oil production to fall another 700,000 million barrels per day in 2021, to just over 11 million barrels per day.
Just last month, the EIA had projected U.S. oil production would increase by 800,000 barrels per day to 13 million barrels per day in 2020, showing just how much the demand shock from the coronavirus has jolted the energy market. Saudi Arabia, the leader of OPEC, and Russia have also worsened the oil glut, pushing prices lower by flooding the market with crude after disagreeing on whether to cut production in response to the coronavirus.
The sudden shift prompted the Energy Department to issue a rare statement in response to the EIA report Tuesday. The United States had been on track to be a net energy exporter this year on an annual basis for the first time on record, thanks to a domestic surge in oil and gas production from the shale boom.
But the EIA report projects “that growth has been stalled due to the unexpected and unprecedented worldwide demand impacts of COVID-19 coupled with the disruptive actions of the ongoing dispute between OPEC + nations,” said DOE spokeswoman Shaylyn Hynes.
“The Secretary is confident that both of these forces are temporary, and the market will recover,” Hynes added.
Hynes said Energy Secretary Dan Brouillette will be “laser focused” on providing relief to the oil industry as companies curtail production and spending in response to low prices and a lack of storage space. The Energy Department last week allowed U.S. oil producers to store excess crude in the country’s emergency Strategic Petroleum Reserve and is working to convince Congress to provide funding so the government can purchase oil from U.S. producers for the SPR.
Brouillette will also participate on Friday in a virtual G20 Ministerial meeting to discuss “the urgent need to restore calm to global energy markets.”
OPEC and Russia, along with other nations, are holding a separate virtual meeting on Thursday to discuss forming an unprecedented global coalition to cut oil production to raise prices. Saudi Arabia and Russia, the two largest oil producers outside the U.S., are hopeful the U.S. cuts production as well.
President Trump said Monday that the market is already forcing U.S. oil companies to cut spending and shut down their wells, without there being a mandate to do so.
“I think the cuts are automatic if you’re a believer in markets,” Trump said in his daily White House briefing, adding companies are “already cutting,” and “it’s the market, it’s supply and demand.”
The new EIA report confirms the private sector is driving production cuts without any intervention from the federal government, the Energy Department said Tuesday.
