U.S. Crude Output Up as Drilling Increases

U.S. crude oil production increased for the second consecutive month in November 2016, the first consecutive monthly increase since April 2015.

Increased drilling activity in the Permian in Texas and New Mexico as well as the start of a number of new projects in the Federal Offshore Gulf of Mexico (GOM) more than offset declining production from other regions in the fourth quarter of 2016. In the Permian, increases in the West Texas Intermediate (WTI) crude oil price, up from averaging near $30 per barrel (b) in the first quarter of 2016 to $45/b or higher beginning in the second quarter of 2016, contributed to new drilling. In the GOM, the projects that came online were sanctioned during the 2012-14 period. Current crude oil prices above $50/b, combined with increasing rig counts in other onshore basins, suggest U.S. crude oil production will likely continue to increase.

U.S. crude oil production averaged an estimated 8.9 million barrels per day (b/d) in 2016, and month-over-month U.S. crude oil production increased by 232,000 b/d in October and by 105,000 b/d in November. Production in the Lower 48 states increased 104,000 b/d in October and decreased 2,000 b/d to average 6.7 million b/d in November, while GOM production increased by 85,000 b/d in October and 89,000 b/d in November. Total U.S. production is forecast to average 9.0 million b/d in 2017 and 9.5 million b/d in 2018, based on EIA's latest Short-Term Energy Outlook (STEO).

Production in the GOM is less sensitive to short-term price movements than onshore production in the Lower 48 states because of the time needed to complete large projects. The projects that started producing in the second half of 2016 collectively produced over 100,000 b/d in November and contributed to overall production increases in the GOM. The latest STEO forecasts year-over-year GOM production to increase by 30,000 b/d in 2017 and a further 140,000 b/d in 2018 to reach a total of 1.8 million b/d.

The Permian was the only region covered in EIA's Drilling Productivity Report (DPR) that did not experience a month with a year-over-year production decline throughout 2014-16. This region benefits from a number of highly productive formations located within an established oil-producing region that allowed producers to continue operations despite low prices. When the WTI spot price rose to over $45/b in May 2016, the Permian experienced a rapid growth in drilling rigs, increasing by 85 rigs from May to November 2016. The increase in drilling activity suggests that some operators can generate positive returns in that region at those prices.

In contrast to the GOM and the Permian, other regions in the United States experienced year-over-year production declines in November. However, recent activity suggests that production may be increasing in these areas as well. According to Baker Hughes, the total U.S. oil-directed rig count increased by 117 rigs since November 2016, with 40% of the increase occurring in regions outside of the Permian and GOM. Since the end of November, the number of active oil rigs has increased in the Eagle Ford by 22, in the Williston by 4, and in the Cana Woodford by 14 (Figure 2).

Rig counts in the Eagle Ford have been trending upward since June, and the basin's latest estimated production for March 2017 is 1.1 million b/d. This is the first monthly increase in this basin since December 2015, according to EIA's February DPR (Figure 3). Similarly, the rig count in the Niobrara increased to 21 in February from 12 in June, the yearly low for 2016. Estimated production for March 2017 is 447,000 b/d, an increase of 15,000 b/d over February. Production in the Bakken averaged over 1.0 million b/d in November 2016, and the rig count increased from a low of 22 in June to 37 as of February 10. These developments suggest regions other than the Permian and GOM may be poised to add production relatively quickly under favorable market conditions.
 

U.S. average regular gasoline and diesel retail prices increase
The U.S. average regular gasoline retail price increased over one cent from the previous week to $2.31 per gallon on February 13, up 58 cents from the same time last year. The West Coast and Midwest prices each rose three cents to $2.73 per gallon and $2.21 per gallon, respectively, while the Gulf Coast price increased one cent to $2.08 per gallon. The East Coast price fell one cent to $2.29 per gallon and the Rocky Mountain price fell less than one cent, remaining at $2.23 per gallon.

The U.S. average diesel fuel price increased one cent to $2.57 per gallon on February 13, 59 cents higher than a year ago. The Gulf Coast price rose two cents to $2.42 per gallon, while the West Coast and East Coast prices each rose one cent to $2.87 per gallon and $2.63 per gallon, respectively. The Rocky Mountain price rose less than one cent, remaining at $2.52 per gallon, and the Midwest price fell less than one cent, remaining at $2.49 per gallon.

Propane inventories fall
U.S. propane stocks decreased by 2.6 million barrels last week to 53.1 million barrels as of February 10, 2017, 17.3 million barrels (24.6%) lower than a year ago. Gulf Coast, Midwest, and Rocky Mountain/West Coast inventories decreased by 1.7 million barrels, 0.7 million barrels, and 0.2 million barrels, respectively, while East Coast inventories remained virtually unchanged. Propylene non-fuel-use inventories represented 5.9% of total propane inventories.

Residential heating fuel prices flat
As of February 13, 2017, residential heating oil prices averaged $2.64 per gallon, unchanged from last week's price and 54 cents per gallon higher than last year's price at this time. The average wholesale heating oil price is $1.74 per gallon, one cent per gallon higher than last week and nearly 61 cents per gallon higher than a year ago.

Residential propane prices averaged just over $2.45 per gallon, virtually unchanged from last week's price and 42 cents per gallon higher than a year ago. Wholesale propane prices averaged $0.86 per gallon, over twelve cents per gallon lower than last week but 39 cents per gallon higher than last year's price.