By Kevin Dobbs
February 8, 2023
American producers generated 12.3 million b/d for the week ended Feb. 3, up by 100,000 b/d from the prior week, data from EIA’s latest Weekly Petroleum Status Report showed. The latest print also marked a 100,000 b/d increase from January’s average and from the pandemic-era peak.
Additionally, production for the latest EIA period far exceeded the year-earlier level of 11.6 million b/d, and it climbed further toward the record of 13.1 million b/d set in early 2020, prior to coronavirus outbreaks.
Total petroleum demand for the Feb. 3 period, meanwhile, advanced 2% week/week.
The rising oil output, led by activity in the prolific Permian Basin, also has helped fuel robust increases in associated natural gas production and, by extension, total gas supplies. Natural gas output early this year touched record highs above 102 Bcf/d. Analysts at East Daley Analytics said in a forecast it could approach 105 Bcf/d this year.
The upward trend comes amid uneven demand in recent months for both oil and gas. Natural gas consumption proved strong early in the winter amid blasts of frigid cold last December. But January and February to date, on the whole, featured benign weather and light heating demand. This weighed down prices in 2023 – from about $6.00/MMBtu late last year to around $2.50 this week – and galvanized analyst calls for production pullbacks.
“Rapid supply growth is baked into the natural gas outlook and will require corrective action,” analysts at East Daley said Wednesday. They see “gas prices falling under $2 this year to slow production growth and avert a storage overfill.”
On the petroleum front, demand proved robust through much of 2022, but it has since leveled off. This developed as economic activity in the United States and Europe slowed, dampening consumption of travel fuels, and as mild weather and weak natural gas prices minimized demand for heating oil.
Total products supplied over the last four-week period averaged 20.1 million b/d, down 8% from the comparable stretch last year, EIA said. Over the past four weeks, motor gasoline demand averaged 8.3 million b/d, down 3%, while distillate fuel consumption averaged 3.8 million b/d, down 16%. Jet fuel product supplied proved the exception, rising 7% to 1.5 million b/d.
West Texas Intermediate crude traded above $77/bbl intraday on Wednesday, up about 1%. Still, the U.S. benchmark remained well below the highs above $120 last year.
Analysts at Société Générale said Permian Basin momentum is expected to further drive crude production this year, perhaps to record levels. Part of the reason: The expected rise in global demand that could come from China’s recent reopening from pandemic-related lockdowns. The country’s massive population and huge economy – second only to the United State globally – could gobble up excess American crude.
This in part due to uncertainty surrounding Russian supplies – the Kremlin is mired in Western economic sanction because of its war in Ukraine – and in part because OPEC-plus is scaling back production. The Saudi Arabia-led cartel in November set a target to cut production by up to 2.0 million b/d. It has since signaled it plans to continue generating lighter output.
OPEC researchers, however, also forecast in their January oil market report that global crude demand would expand by 2.2 million b/d this year, driven by Chinese demand.
The International Energy Agency (IEA) last month forecast growth of 1.9 million b/d, below OPEC’s estimate but still enough to boost global output to a record 101.7 million b/d.
“Two wild cards dominate the 2023 oil market outlook: Russia and China,” IEA researchers said in a monthly oil report. They said strong demand growth could tighten “balances as Russian supply slows under the full impact of sanctions.”
The Société Générale analysts, meanwhile, said that Chinese economic data signaled a rebound in activity and oil demand following the shift in Covid-19 policy.
“After Beijing simply abandoned its zero-Covid policy in December, the easing of the restrictions that had protected the country during the pandemic was immediately noticeable,” the analysts said.
However, they noted that the Chinese government in the pandemic era has moved swiftly to clamp down on virus outbreaks, and they cautioned this possibility looms large in 2023.