Has US Oil Output Reached Its Peak?

The question of whether U.S. oil production has peaked is becoming increasingly significant as global markets grapple with volatility and supply concerns.

According to analysts at BCA Research, U.S. oil production has not yet reached its peak and is projected to continue increasing, though at a slower rate than observed in previous years. In August 2024, U.S. crude output reached a new high of 13.4 million barrels per day, reflecting a 3% rise from the previous year. This growth highlights the resilience of the U.S. oil sector, even amid a broader global slowdown in production expansion. However, the growth rate has moderated from the 8% increase seen in 2023.

The ongoing expansion is primarily driven by the Permian Basin, which represents 48% of U.S. production and 8% of global supply. Analysts have indicated that over a 6-to-12-month period, the outlook for oil prices is likely to trend downward.

Energy companies are currently exhibiting capital discipline, prioritizing value returns to shareholders rather than aggressively expanding production. This trend is bolstered by consolidation within the energy sector, leading to fewer small producers who might typically react quickly to market changes.

Additionally, falling oil prices are diminishing the motivation for U.S. producers to significantly increase supplies. Experts suggest that prices would need to rise substantially—between $64 and $89 per barrel—to render new drilling operations highly profitable. With current prices around $70 per barrel, the incentive for increased drilling activity remains weak. This situation is reflected in the decreasing number of new wells being drilled and completed, as producers are focusing on efficiency improvements rather than initiating new drilling projects.

Despite a drop in the rig count and a reduction in drilled but uncompleted wells, U.S. production continues to grow due to enhanced well productivity. Infrastructure advancements, particularly within the Permian Basin, are also expected to support sustained U.S. oil production. The expansion of pipeline capacity aims to alleviate existing constraints in the area, facilitating continued growth in crude output.

Natural gas, a byproduct of oil drilling, has encountered challenges due to limited pipeline capacity, with prices at specific hubs in Texas falling below zero for an extended period. The completion of new pipelines is anticipated to relieve these issues and assist in ongoing production growth.

Nonetheless, a significant rebound in U.S. oil output appears unlikely without a considerable increase in prices potentially induced by geopolitical events. The current slowdown in the business cycle and a decline in global demand are posing challenges for oil prices. Thus, the analysts maintain that over the coming months, the trend for oil prices is expected to remain downward.