The years of very rapid growth in U.S. crude oil production are behind us, in large part due to the maturing of the biggest growth engine, the Permian, according to Goldman Sachs.
The investment bank expects declines in America’s crude oil output for this year and next because of the lower oil prices, Daan Struyven, oil research head at Goldman Sachs, told Bloomberg TV in an interview on Thursday.
U.S. shale producers are the most reactive to oil price changes and they are typically quick to follow the price trends. Lower prices are prompting caution among the American oil industry despite President Trump’s calls for “drill, baby, drill”.
The current U.S. benchmark price, WTI Crude, in the mid $60s per barrel is actually a sweet spot for the U.S. economy—the price is affordable for consumers and “probably a touch low for producers but still above breakeven rates for most U.S. producers,” Struyven said.
If oil prices remain in the mid-$60s, U.S. oil production will move sideways with very little growth, he added.
Referring to oil prices going forward, Goldman’s Struyven noted that the Wall Street bank is very closely watching the large surplus that is materializing. However, the glut hasn’t reached the pricing centers yet, especially in the U.S., where inventories are still low, so prices have not collapsed.
On Wednesday, the U.S. Energy Information Administration (EIA) reported that crude oil inventories in the United States decreased by 3.9 million barrels during the week ending July 11. Commercial stockpiles at 422.2 million barrels are currently about 8% below the five-year average for this time of year.
Goldman Sachs assumes that the big inventory builds will eventually show up at the pricing centers and put downward pressure on oil prices.
Prices have recovered somewhat in recent days as the market focus has shifted away from downside to demand to downside to supply, be it Russia or Iran, Goldman’s Struyven said.
By Michael Kern for Oilprice.com
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