Executives Warn of Severe Fall in US Oil Production

US oil executives recently warned that decline in US oil production could lead to a price hike in case demand for fuel shoots up. They were speaking at the Oil and Money Conference, an annual event for senior representatives of the industry, held in London.

Delegates said that oil prices worldwide are too low to support shale oil output in the US. Mark Papa, the former chief of EOG Resources, an oil company, said: “We are about to see a pretty dramatic decline in US production growth.” He said that oil production in the US will start declining from early 2016 chiefly because of lack of funds for more shale developments.

According to official data, oil output in the US, which had achieved its peak of 9.6 million barrels per day in April 2015, has already begun declining. Simultaneously, production has remained steady in certain big shale regions such as North Dakota and others. On Tuesday, the Energy Information Administration predicted that oil output would fall to 8.6 million barrels per day in 2016.

Till 2015, oil output in the US was experiencing the fastest rate of growth, with an extra 1 million barrels per day being added every year because of adoption of latest drilling techniques.

But the price of oil worldwide halved in 2014 owing to oversupply following changes in strategies on the part of the Organization of Petroleum Exporting Countries to increase their competitive edge. Previously, the organization had raised prices of oil by decreasing output.

Ben Van Beurden, the chief executive officer of Royal Dutch Shell Plc, said that output will decline further in future as prices will continue to remain low and oil producers in the US will struggle for much needed finances. He said:

Producers are now looking for new cash to survive and they will probably struggle to get it.

He spoke about long-term risks of oil prices shooting up because of decline in global output of oil production. He also said that the likelihood of any spare capacity surviving in the system will diminish if oil prices continue to remain low for long and oil production outside the US and OPEC declines. He warned:

This could cause prices to spike upwards, starting a new cycle of strong production growth in US shale oil and subsequent volatility.

Although the US oil industry has increased productivity to combat low oil prices, it cannot continue to do this forever.