We’ve gotten so used to seeing U.S. oil output increasing over the last seven years that any decline—no matter how slight—has to come as a shock. In its latest short-term energy outlook, the Energy Information Administration (EIA) projected U.S. oil production will drop by 160,000 barrels per day (bpd) next year down to 9.27 million bpd.
Shale has been wholly responsible for the ever-rising oil numbers these recent years, but low oil prices are putting a strain on an industry focused on plumbing some of the mostly costly plays in the world. Oil is trading at less than 40 percent today than it was just a year ago thanks to sluggish demand in Europe and Asia, booming production from the U.S. and, most recently, record output from the oil cartel OPEC.
Saudi Arabia, previously the de facto swing producer for the global oil market, is no longer content to cut production in an attempt to keep prices inflated. Rather, it’s pushing output to 30-year highs while OPEC sees its production soar to a nearly three-year high. The Saudi strategy that it has strong-armed some of the poorer OPEC members into following is simple: endure the low prices for now in the hope that it will hurt non-OPEC producers (read: American shale firms) more than it will the collection of petrostates. The EIA’s lower forecast for next year shows that, to some extent, that plan is working.
But while the EIA’s outlook for 2016 is looking a bit dimmer, it expects production to grow by 720,000 bpd this year, a sight more than next year’s decline. And though the shale boom is tapering off in the face of a more competitive (and oversupplied) market, it’s already vaulted the U.S. to new heights among the world’s top energy suppliers. In fact, according to BP’s Statistical Review of World Energy released this week, America has now supplanted Russia as the world’s top producer of oil and gas for the first time.
The bearish oil market hasn’t been kind to anyone selling the commodity, OPEC included, and the EIA’s outlook confirms that shale firms are feeling the pinch. Whatever you do, don’t count the U.S. out—those shale companies are hard at work innovating new ways to stay profitable even at today’s bargain prices.