US Crude Oil Production Nears Pre-Pandemic Record, but Growth Slows

The production of crude oil in the United States saw an increase in June, nearing the record high set before the COVID-19 pandemic. However, the pace of growth has slowed as the industry responds to falling prices since mid-2022.

In June, total crude and condensates production reached 12.8 million barrels per day (bpd), up from 12.6 million bpd in May, and is rapidly approaching the record of 13.0 million bpd set in November 2019. The output from the Lower 48 states, excluding federal waters in the Gulf of Mexico, saw a record increase to 10.6 million bpd.

Although production had been increasing by 0.9 million b/d (almost 10%) compared to a year earlier, growth has slowed significantly over the past three months, with output rising by just 0.1 million b/d (an annualized rate of 4%). This slowdown can be attributed to the decrease in prices following Russia’s invasion of Ukraine and the subsequent sanctions imposed.

Historically, it takes around five months for drilling to decline after prices peak and 12 months for production to decline. After prices peaked in June 2022, the number of rigs drilling for oil peaked in December 2022 and has since fallen by 16% by August 2023. Lower 48 output is expected to peak in the third quarter of 2023 as exploration and production firms work through their inventory of drilled but uncompleted oil wells.

The decrease in Lower 48 production will contribute to a tightening global oil market in the final months of 2023, especially with ongoing production cuts by Saudi Arabia and Russia. However, the recent increase in prices due to these cuts has provided some relief to U.S. producers.

On the gas side, dry production saw a 4% increase in June compared to the same month the previous year. However, there has been minimal growth since the end of last year, corresponding with the slump in gas prices and the slowdown in drilling.

Gas futures prices were down by 75% in April 2023 from their peak in August 2022, and while they have slightly rallied, they are still down by more than 70% in August 2023. Gas production is also expected to peak and decline before the end of 2023 due to low prices and the slowdown in drilling.

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