The shale oil boom that turned the U.S. into the world’s largest fuel exporter and brought $3 gasoline back to America’s pumps is grinding to a halt.
Crude output from the prolific tight-rock formations such as North Dakota’s Bakken and Texas’s Eagle Ford shale will shrink 1.3 percent to 5.58 million barrels a day this month, based on Energy Information Administration estimates. It’ll drop further in July to 5.49 million, the agency said Monday.
With the Organization of Petroleum Exporting Countries refusing to curb its own oil production, U.S. shale is coming under pressure to re-balance a global supply glut.
Everyone from EOG Resources Inc., the country’s biggest shale-oil producer, to hedge fund manager Andrew J. Hall to banks including Standard Chartered Plc have forecast declines in U.S. output following last year’s plunge in crude prices. The nation was still pumping the most in four decades in March.
“Production has to come down because rigs drilling for oil are down 57 percent this year,” James Williams, president of energy consultancy WTRG Economics, said. “Countering that is the fact that the rigs we’re still using are more efficient and drilling in areas where you get higher production. So that has delayed the decline, and it’s making us nervous about when exactly it’s going to happen.”
West Texas Intermediate crude for July delivery fell 99 cents to settle at $58.14 a barrel on the New York Mercantile Exchange. Futures have rebounded 30 percent since March 18 amid speculation that U.S. oil drillers had laid down enough rigs to curb supply.
Despite the U.S. oil rig count falling for 26 straight weeks, domestic crude production surged 126,000 barrels a day, or 1.3 percent, to 9.53 million in March, the most since 1972, Energy Information Administration data show.
“We do not believe that the direction of U.S. oil output has changed,” Standard Chartered analysts including Nicholas Snowdon said in a research note June 1. “In our view, U.S. oil supply is still falling, and it is likely to carry on falling for the rest of this year.”
Shale oil output will decline by 105,000 barrels a day in July after dropping 86,000 barrels in June, according to the London-based bank.
EOG Resources chief executive officer Bill Thomas said at a conference last month that U.S. production would drop through the end of the year.
The EIA’s forecasts for U.S. oil production cover the yield from major plays that together accounted for 95 percent of domestic output growth from 2011 to 2013.
Output from the Eagle Ford in Texas, the second-largest oil field in the U.S., will contract by 49,000 barrels a day in July to 1.59 million. Production in the Bakken shale region of North Dakota will slip by 29,000 to 1.24 million, the EIA said.
Yield from the Permian Basin in West Texas and New Mexico, the largest U.S. oil field, will rise by 3,000 barrels a day to 2.06 million.
The EIA’s oil-production forecasts are based on the number of rigs drilling in each play and estimates on how productive they are.
U.S. drillers are retreating from oil fields as OPEC, which accounts for more than a third of the world’s oil, continues to resist calls to curb its own supply. The 12-nation group decided last week to instead maintain a combined daily production target of 30 million barrels.
“You’re seeing production go down, but is it going down fast enough?” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, said by phone Monday.
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