U.S. Oil Production Has Biggest Spike Since 1970

Jim Brown
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According to Platts crude oil production in the U.S. is on target to have its biggest one year jump since 1970. U.S. oil production has averages 5.268 million barrels per day through October. That equates to a 6.4% jump over 2008 levels.

U.S. crude production peaked at 9.637 mbpd in 1970. That was exactly where Ken E Hubert predicted it would peak more than a decade earlier. If the 5.268 mbpd average holds through the end of December it would be the best U.S. production since 2004 when output averaged 5.419 mbpd. I know, we are talking miniscule differences here when global production is roughly 86 mbpd but this is news! The anti-peak crowd will be out with dozens of press releases about the production increase. They need to capture the headlines every chance they get.

To put is in perspective oil production has only risen 8 times since 1970 and each time it was minimal and the downward slide returned the following year. The only year with a material increase was 1978 when production increased +5.6% to 8.7 mbpd due to some new production in the gulf.

In 2008 there was a lot of lost production due to hurricanes with 183,000 bpd still offline at year-end. That makes the minimal rise mentioned above less important since the gain was actually due to a hurricane the prior year. 2006, 2007 and now 2009 have been relatively storm free so disruptions have been held to a minimum.

In 2010 we should see a sharp increase as numerous deep-water Gulf wells come online. Many of them were scheduled back in 2005 when the twin hurricanes pounded New Orleans and several of the rigs and platforms were sunk and many sustained severe damage. This delayed the start of production by 2-3 years in several cases.

Platts believes that the U.S. has a chance to actually maintain production above 5 mbpd for the next ten years because of the new wells planned for the gulf. The Gulf of Mexico saw its largest production of 1.556 mbpd in 2002 but only 61% came from deep-water. The U.S. MMS projects oil output in 2009 of 1.213 mbpd with 76% from deep-water. That ramps up to 1.635 mbpd by 2011 if everything proceeds on schedule.

The Bakken Shale play you see pumped so much by the scammer newsletters is also beginning to increase production although very slowly. Production at the end of 2008 was 202,000 bpd and despite all the hype and hysteria about investing in the Bakken the 2009 production has risen to only 215,000 bpd. A 13,000 bpd day increase with hundreds of wells added proves the Bakken is overly hyped. Yes there is oil there. Yes it is commercial but it takes expensive wells with long payouts to reap any profits.

Bakken pioneer EOG Resources has set a goal of shifting from 70% gas production to 50:50 gas/oil by 2011 by exploring other shale plays for traces of oil.

Chart of EOG

The EIA says the drop in demand coupled with the increase in production in the gulf and onshore has pushed U.S. imports to the level not seen in several years. Imports in 2008 ranged from 10.5 mbpd to 12.68 mbpd. In 2009 imports have ranged from 8.84 mbpd to 10.1 mbpd. During this same period we have added to inventories by more than 140 million barrels thanks to the drop in demand. This should keep pressure on prices until the middle of 2010 but you never know when investors will begin to anticipate a buildup in future demand and start loading up on crude contract again. There is always the dollar dilemma as well. With the dollar index flirting to a failure at the 75 level and some analysts projecting a drop below 60 over the next couple years the price of oil could easily be over $100 in 2010 simply as a dollar hedge.

Jim Brown