The US oil and gas industry, a cornerstone of the global energy market, is exhibiting signs of stabilization after a period of significant fluctuations. This trend, marked by a flattening of production levels, is expected to persist through 2024 and into 2025. The stabilization comes after a series of price changes and weather disruptions that have impacted production dynamics.
According to the latest data from the US Energy Information Administration (EIA), nationwide crude and condensate production was running at almost 13.2 million barrels per day (bpd) in March 2024. However, there has been no net growth since October 2023, indicating that the surge in production following the end of the coronavirus pandemic and Russia’s invasion of Ukraine has ended. This stabilization is further evidenced by the fact that production from the Lower 48 states, excluding federal waters in the Gulf of Mexico, was up by less than 0.5 million bpd in March compared to the same month a year earlier.
Price Dynamics and Production Response
The relationship between oil prices and production levels is well-documented. Inflation-adjusted front-month US futures prices retreated to around $81 per barrel by December 2022 from a high of $124 in June 2022. This price drop led to a stabilization or retreat in production about 10 to 12 months later, in line with historical trends. As of May and June 2024, US futures prices have averaged between $73 and $78 per barrel, providing no strong signal to either increase or decrease production.
Impact of Drilling Activity
The number of rigs drilling for oil has also seen a significant decline, falling to an average of just 497 in May 2024 from a cyclical peak of 623 in December 2022. This reduction in drilling activity is a direct response to the lower price environment and has contributed to the stabilization of production levels. Similarly, the number of rigs drilling for gas has fallen to an average of just 101 in May 2024, down from a cyclical high of 162 in September 2022.
Natural Gas Production Trends
Natural gas production has also shown signs of flattening. Dry gas production averaged 102.6 billion cubic feet per day (bcf/d) in March 2024, compared to 102.9 bcf/d in March 2023. This slight decline indicates that gas production peaked at the end of 2023 and has since been trending gently but steadily lower. The collapse in inflation-adjusted futures prices to an average of $1.75 per million British thermal units in March 2024, the lowest in more than three decades, has significantly impacted drilling activity and production levels.
Future Outlook
Looking ahead, unless there is an unexpected rebound in prices, US oil and gas production is likely to remain broadly flat throughout the rest of 2024 and into 2025. This stabilization will help rebalance the market, especially as lower prices and limited growth in US output create space for OPEC+ to reverse some of their production cuts. Additionally, strong gas combustion by generators this summer, colder weather next winter, and an increase in liquefied natural gas exports are expected to eliminate surplus inventories before the end of winter 2024 and 2025.
The US oil and gas industry is navigating a period of stabilization after years of significant fluctuations. This trend is driven by a combination of price dynamics, reduced drilling activity, and external factors such as weather disruptions. As the industry adapts to these new conditions, production levels are expected to remain relatively flat, providing a more predictable and balanced energy market.
