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US oil production growth set for major slowdown

The growth in US oil production may be running out of steam, according to IHS Markit’s latest outlook for oil market fundamentals.

According to IHS Markit’s vice president for North American uncoventionals, Raoul LeBlanc, production growth will be radically lower than in recent years. The market outlook predicts a production growth of 440,000 barrels per day (bpd) in 2020, which may seem substantial, but is considerably lower than the 2 million bpd annual growth of last year. Production will then plateau in 2021 before resuming growth in 2022, albeit at much lower levels than in recent years.

LeBlanc explains that markets are having a moderating effect on shale oil production, which has been largely driving total US crude oil production. He says:

“The combination of closed capital markets and weak prices are pulling cash out of the system. Investors are imposing capital discipline on E&P’s by pushing down equity prices and pushing up the cost of capital on debt markets.”

Oil majors like ExxonMobil will likely not be affected by this, however, especially as it seems to be focussing on an approach of refining the oil from its shale operation into higher value goods, such as its Mobil DTE hydraulic oil, making it less susceptible to low crude oil prices.

The report also concludes that the US oil market does still have some capacity for growth should oil prices increase for whatever reason. It predicts that a price of $65 per barrel could see the return of strong volume growth.

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