U.S. oil production at all time high, reaches 12.8 million barrels per day in November

Nov 20, 2019

Adrian Hedden, Carlsbad Current-Argus |  November 18, 2019

Production of U.S. crude oil rose to an all-time high in October, peaking at 12.6 million barrels per day last month and continuing to grow to 12.8 million barrels per day as of Nov. 8.

Data from the U.S. Energy Information Administration showed oil production consistently grew throughout 2019, up from January’s peak of 11.9 million barrels per day, crossing the 12 million barrel-per-day threshold in March.

By the end of August, production was  about 12.5 million barrels per day, but dipped slightly to 12.4 million by the end of September, records show.

October’s rate of 12.6 million barrels per day was consistent throughout the month, with production climbing in the second week of November to 12.8 million barrels.

A report from the American Petroleum Institute (API) cited the rise in production, coupled with lower prices throughout October.

“Across the board, the October results were a great reflection of how market forces have benefited consumers,” said API Chief Economist Dean Foreman. “Decreased oil prices in October – despite record demand for the month and solid exports – underscored the influence of U.S. oil production on global markets and helped insulate consumers from external shocks.”

Robert McEntyre, spokesman for the New Mexico Oil and Gas Association said New Mexico's Permian Basin was leading the growth.

He said the State was nearing one million barrels per day, having already surpassed 900,000 barrels per day earlier this year.

"This accomplishment for this country shows the strength of the Permian Basin and in places like New Mexico where investment and development has accelerated in recent years," McEntyre said. "As national oil and gas production increased, that's coming from a handful of shale basins, but mostly from New Mexico."

United States a world leader in oil production

The rise in production further solidified the U.S. as the top oil-producing country in the world, the report read.

For total petroleum products, including crude oil, petroleum liquids and biofuels, the EIA reported the U.S. lead the world with 17.9 million barrels per day, or 18 percent of global production.

The U.S. was ahead of Saudi Arabia, which has 12.4 million barrels per day or 12 percent of the world's total production, and Russia with 11.4 million barrels per day or 11 percent of the global market.

Kathleen Sgamma, president of the Western Energy Alliance credited the Permian Basin and New Mexico as a “primary” contributor the U.S. rise to oil production prominence.

She also pointed to the Powder River Basin in Wyoming and the Bakken in North Dakota as significant regions of production in the U.S.

“The Permian Basin, including New Mexico, is a primary reason the United States has reached record production,” Sgamma said. “But other oil areas in the West such as the Powder River Basin in Wyoming and the Bakken in North Dakota have contributed as well.”

The biggest challenge facing the oil industry, she said, is the constantly growing need for pipelines and other infrastructure to address a “glut” in natural gas brought up with crude oil.

“The challenge continues to be the high percentage of associated natural gas from oil wells in these areas,” Sgamma said. “Because there’s a glut of natural gas in the United States, there simply isn’t a market for all the extra gas.”

Without enough infrastructure to move the natural gas, Sgamma said producers are often forced to burn it off via flaring or release the gas into the atmosphere.

More natural gas exportation from the U.S. helped the situation, she said, but the only solution was more pipelines and takeaway capacity.

“Additionally, there often isn’t enough pipeline infrastructure to capture all the gas, resulting in flaring or a shut in of oil production. Natural gas export is helping to relieve the situation, but new pipelines and export facilities take years to develop,” Sgamma said.

“Meanwhile, oil production growth can be constrained until the gas infrastructure catches up.”

Increased pipeline developments allowed more oil to be produced, Foreman said, as a slowdown in production earlier this year was credited to a lack of infrastructure to move product to export markets on the Gulf Coast.

“This also demonstrates the tremendous value of infrastructure, as the breakout oil production was largely enabled by increased pipeline egress from the Permian Basin, improving deliverability to key Gulf Coast refining and export markets,” he said.

Takeaway capacity was a challenge, McEntyre said, but because New Mexico's land is mostly either federal- or state-owned, the state's industry is even more susceptible to the impacts of government regulations.

"We work closely with them (government agencies) to make sure we're following the law, while developing oil and gas responsibly," he said. "To have the capacity to keep pace with production is critical."

Oil prices maintain momentum

The value of U.S. crude oil continued its upward trend this week, as the price of West Texas Intermediate (WTI) – a grade of crude used as a benchmark for domestic pricing – continued in the upper $50s, trading at about $57 per barrel as of Monday, per data from Nasdaq.

Monday's price saw a mild decline from the month's highest price of about $58 per barrel on Friday, but continued its recovery from lower prices earlier this fall.

That rate was the highest in November, which began at $56 per barrel, following a drop on Oct. 31 to $54 per barrel.

October bottomed out at about $52 per barrel, following September's high of $62 per barrel.

A report from Enverus credited the upward momentum to growing optimism in the global market, as trade talks between the U.S. and China appeared be nearing fruition and the U.S.' continued economic expansion.

"WTI prices extended the recent range that has held the market for the last few weeks, closing near the highs for the week," read the report. "Some of the optimism was generated from comments from Fed Chairman Jerome Powell outlining a healthy U.S. job market and projections for continued economic expansion.

"The news on Friday regarding the potential for the Phase 1 trade agreement (between U.S. and China) getting close to finalization also provided optimism in the crude and equity markets."

If trade talks between the world's two biggest economies falter, the report cautioned that prices could drop back to $55 per barrel or lower.

"Rallies will challenge the highs from September between $58.49-$59.39 (per barrel)," the report read.

"Bearish input from a potential breakdown of the US-China trade deal could bring another test at the low end of the range at $55 this week, which will likely find buyers."