BIMCO’s SNOW: US crude oil production takes 1.1m bpd hit due to snowstorm
Texas is by far the largest crude oil producing state in the US, accounting for 43.0% of total US crude oil production in 2020. In a distant second place is North Dakota, accounting for 10.4% of total US production.
Adding to the recent production drop caused by the snowstorm, the pandemic and a number of developments in the oil market in 2020 has caused the lowest start to the year for US crude oil production since 2018, pausing many years of growth driven by the boom in US shale oil industry.
In the first seven weeks of 2021, US crude oil production has averaged 10.8m bpd, 17.2% (2.2m bpd) lower than in the first seven weeks of 2020. Lower US crude oil production, and as a result, lower exports, are bad for the crude oil shipping industry as these generate much higher tonne mile tanker demand than exports from the Middle East Gulf or Russia when exported to the Far East.
US crude oil production has already been squeezed by the low oil price, as the US faces a higher production cost than the world’s other large crude oil producers. The recent increase in the oil price has caused Brent crude to exceed USD 65 per barrel and thereby reaching its highest level since January 2020, has placed most US crude oil producers back above breakeven. However, with another OPEC+ meeting scheduled for 4 March with production levels from Q2 and onwards on the agenda, output from this alliance is likely to increase, adding more oil supply to the market and adding downwards pressure on the oil price.
“The OPEC+ alliance will be seeking a fine balance between increasing production and exports to avoid losing market share, in particular to the US, while also not wanting the oil price to fall too heavily,” says Peter Sand, BIMCO’s Chief Shipping Analyst.
“What happens at this meeting, and how it affects the oil price, will impact demand for US crude oil. However, even if the oil price were to continue to rise, lower investments and rig closures in the US mean that the production throughout 2020 cannot be reactivated overnight,” says Peter Sand, BIMCO’s Chief Shipping Analyst.
To read more about the OPEC+ alliance, its market share, as well as the general state of the tanker market, check out BIMCO’s latest tanker Shipping Market Overview and Outlook.