The U.S. government said on Tuesday it expects domestic oil output in 2016 to grow only 2.2 percent, the slowest pace in years, as the relentless rout in prices puts the brakes on the country’s five-year shale boom. In its first forecast for next year, the U.S. Energy Information Administration said domestic oil production will rise about 200,000 barrels a day to 9.5 million bpd in 2016.
That amount in barrels is the smallest increase since 2011. While this would be the second-highest annual average level of production in U.S. history, the slowdown in growth reflects the long-term impact of plunging prices on output as drillers curb higher-cost capacity in some shale formations. “Many oil companies have cut back on their exploration drilling in response to falling crude prices and will concentrate their drilling activities in established areas that already have productive wells,” EIA Administrator Adam Sieminski said in a statement.
The EIA held its estimate for 2015 at a rise of 720,000 bpd to around 9.3 million bpd. Output rose to 9.13 million bpd by the end of 2014, according to EIA data. Oil production in the Lower 48 states excluding the Gulf of Mexico is expected to expand during the first four months of 2015, data shows. Between April and May, production is expected to remain unchanged, then it will taper off until the end of the year.
Vikas Dwivedi, global oil and gas strategist for Macquarie, said the outlook is a “tale of two halves.” He explained that 2015 forecasts show residual output growth from investments made before oil prices collapsed, while cuts in drill rigs already under way should feed through to production rates by the end of the year if prices remain around $50 per barrel. “It’s all subject to what happens to the balance of 2015. If you freeze-frame prices, we should see almost little to no growth (in 2016),” he said.
That would mark the end of an almost decade-long rise in U.S. production. The EIA, the data arm of the U.S. Department of Energy, raised its expectations for world oil demand growth for 2015 and expects world oil demand to hit 93.42 million barrels a day in 2016, up 1.03 million bpd from its 2015 forecast. Meanwhile, the EIA revised its gasoline consumption forecast between 2014 and 2015 from a decline of 20,000 bpd in the previous outlook to an increase of 60,000 bpd.
The change was a result of lower gasoline prices, particularly as the 31 percent decline in the annual average price of regular-grade gasoline between 2014 and 2015 is the largest since at least 1981. The EIA estimates that global oil inventories increased by almost 800,000 bpd in 2014, the largest build since 2008. Stocks are expected to continue to grow by 900,000 bpd during the first half of 2015, but taper off by year-end as non-OPEC supply growth, particularly from the United States, weakens because of lower oil prices.
The agency expects prices to remain weak this year, with a forecast of Brent crude oil trading at $58 a barrel in 2015 and $75 a barrel in 2016. In addition to a slowdown in U.S. output growth, the EIA expects crude oil production from OPEC to remain flat in 2015 and fall by 0.3 million bpd in 2016.