USA Oil Production Unlikely to Surge Under Trump, StanChart Says

U.S. oil production is unlikely to surge under Donald Trump, Standard Chartered Bank Energy Analyst Emily Ashford said in a report sent to Rigzone by Standard Chartered Bank Commodities Research Head Paul Horsnell recently.

“There is a recent media narrative that the second Trump administration will lead to a surge in U.S. oil production, with producers eager to drill and produce more when unincumbered by perceived Biden-era bureaucracy,” Ashford said in the report.

“This is a flawed narrative, in our view. U.S. oil production, and particularly unconventional (or shale oil) production has changed significantly since Trump first took office in 2017, and there are substantial barriers to rapid production increases within the timeframe of a presidential term,” Ashford added.

In the report, Ashford highlighted that U.S. crude oil supply was 13.401 million barrels per day in August, according to data from the U.S. Energy Information Administration (EIA).

“This is a new all-time high, exceeding the previous record of 13.308 million barrels per day set in December 2023,” Ashford highlighted.

The energy analyst noted, however, that the interpretation of the new record depends heavily on its comparative base.

“Output has risen by 4.7 million barrels per day since the pandemic-era low of May 2020. However, it is just 0.4 million barrels per day higher than the pre-pandemic high of November 2019, with the average annual growth rate just 80,000 barrels per day over this timeframe,” Ashford pointed out.

Ashford noted in the report that U.S. oil production growth is forecast to continue to slow this year and next.

“We estimate that U.S. liquids supply increased by 1.605 million barrels per day in 2023, but we forecast growth of 630,000 barrels per day in 2024, slowing further to 300,000 barrels per day in 2025,” Ashford said.

“Aside from direct impacts on U.S. production, concerns over trade wars, and associated impacts on high demand growth centers such as China and India may dampen oil demand growth forecasts; this, in turn, could weigh on prices, meaning that less U.S. oil production is economic,” Ashford added in the report.

Supply Increases Difficult

Ashford highlighted in the report that shale oil production dynamics make long-term supply increases difficult to maintain.

“U.S. oil production is dominated by a few majors and independent producers, alongside private companies, rather than a national oil company,” Ashford pointed out.

“These companies have their own strategies and for many the recent focus has been on capital discipline, and to ensure a return on shareholder investment, rather than rapid expansion in output,” the analyst added.

“Shale oil has a different production profile to conventional oil. Production is brought onstream rapidly, and maintains a relatively brief peak of high productivity, often within the first few months. Following this, hyperbolic decline sets in,” Ashford continued.

The analyst noted that the hyperbolic decline rate varies, depending on reservoir characteristics, completion techniques and production drawdown, but revealed that it can be between 40 and 80 percent.

“Over time, this adjusts to exponential decline. After a few years’ production it becomes uneconomical, producing minimal amounts,” Ashford warned in the report.

“Such high decline rates and short production profiles mean that new production must be continually brought onstream to counter these legacy declines, the so called ‘Red Queen effect’,” Ashford said.

“There is a delicate productivity balance between completion techniques and technology advances, as the geological quality of the acreage declines. Effectively managed, we believe it is possible for U.S. supply to stabilize at current prices,” Ashford added in the report.

“The prospect of additional tariffs on steel would increase costs, meaning there is very little scope to increase production rapidly and sustain it for a significant time,” Ashford went on to state.

The Standard Chartered energy analyst also highlighted in the report that Trump may decide to open up Federal land for exploration and production.

Ashford noted, however, that the timeframe from licensing to exploration and appraisal, and eventual production, particularly for conventional oil and gas assets, is multi-year and said this would push new production beyond the limits of a four-year second presidential term.

Rigzone has contacted the Trump campaign for comment on the Standard Chartered report. At the time of writing, the Trump camp has not yet responded to Rigzone.

Evidence of a Surge?

In a previous report sent to Rigzone on November 5 by Horsnell, analysts at the company, including Horsnell, said, “we have seen several commentaries and media reports that suggest that the latest quarterly reports of the international majors (and particularly the two U.S. majors) are evidence of a surge in Permian output in Q3”.

“We disagree. In our view, confusion has arisen by not comparing like-with-like, and in particular, not adjusting for the output of assets acquired by majors in Q2,” they added.

“With that adjustment made, output is shown to have been slightly lower quarter on quarter in Q3; we calculate that the majors with an upstream presence in the U.S. produced 3.379 million barrels per day of oil liquids in Q3 from a base that produced 3.382 million barrels per day in Q2,” they continued.

In that report, the Standard Chartered analysts said the results imply flat Permian output in Q3 rather than a surge.

“While it is true that the Permian output of the combined majors has increased significantly over the past two quarters, that change has primarily come from acquisitions rather than organic growth,” the analysts stated in that report.

USA Crude Oil Production

In its latest short term energy outlook (STEO), which was released last month, the EIA reduced its U.S. crude oil production forecast for this year and next year.

The EIA’s October STEO projected that U.S. crude oil output, including lease condensate, will average 13.22 million barrels per day in 2024 and 13.54 million barrels per day in 2025. The organization’s previous STEO, which was released in September, forecast that U.S. crude oil production would average 13.25 million barrels per day this year and 13.67 million barrels per day next year.

According to data on the EIA website showing monthly U.S. field production of crude oil from January 1920 to August 2024, which was last updated on October 31, U.S. field production of crude oil has averaged 13 million barrels per day or more in a month on 12 occasions.

August 2024 saw the highest monthly U.S. field production of crude oil in the dataset, at 13.401 million barrels per day. The second highest figure was seen in December 2023, at 13.308 million barrels per day, and the third highest figure was seen in November 2023, at 13.281 million barrels per day, the data showed.

To contact the author, email andreas.exarheas@rigzone.com