U.S. exploration and production (E&P) firms kept crude output even last week amid an uncertain demand outlook and expectations for steep cuts to global supplies.
E&Ps produced 12.2 million b/d for the week ended March 31, according to the U.S. Energy Information Administration’s (EIA) Weekly Petroleum Status Report (WPSR) on Wednesday.
The result was flat with the previous week. Output had declined 100,000 b/d week/week in the March 24 period, when activity retreated from the 2023 peak and pandemic-era high of 12.3 million b/d.
The latest EIA print was up from the year-earlier level of 11.8 million b/d. Producers hit a record 13.1 million b/d in March of 2020, just prior to coronavirus outbreaks in the United States.
The WPSR followed announcements early this week from Saudi Arabia and allied countries that they would collectively cut oil production by more than 1 million b/d. These reductions are in addition to an OPEC-plus move in late 2022 to cut production by up to 2.0 million b/d and Russian plans to slash output by 500,000 b/d.
In all, eight OPEC-plus countries this week announced a total cut of more than 1.15 million bbl, effective from May and lasting until the end of the year. Russia extended its 500,000 b/d cut from June to the end of the year.
The Sunday announcements sent Brent crude prices, the international benchmark, up 5% to $85/bbl in Monday trading. This marked a rebound from lows around $70 level in early March, when a string of bank failures ignited fresh recession worries.
The Saudi-led reductions in supply amount to more than 1% of global output and could fuel more upside for prices, particularly if U.S. producers hold the line on drilling heading into spring.
However, the global cuts may suggest producers are worried about economic weakness in the United States and Europe, where high inflation and surging interest rates are curbing consumer spending. Recessions tend to result in reduced travel and industrial activity, developments that could crimp oil consumption, said Walid Koudmani, chief market analyst at investment platform XTB Limited.
Falling demand would prove “an important factor in the longer term price trends,” Koudmani said.
Elena Nadtotchi, a senior vice president at Moody’s Investors Service, similarly said the production cuts could bolster prices this year, though this is “pending the expected increase in oil demand in the latter part of 2023.”
Specifically, analysts anticipate a surge in Chinese demand as the summer travel season heats up. China’s government early this year lifted a litany of pandemic-related economic restrictions, a move projected to unleash pent up demand and, by extension, crude consumption.
Brent prices leveled off around the $85 level Tuesday and held near there Wednesday morning.
U.S. petroleum demand for the March 31 period ticked up 1% week/week, EIA said. This followed a 2% increase the prior week. Increased consumption of gasoline and distillate fuel supported the overall demand gains over the past two weeks.
With consumption creeping upward and production flat, U.S. commercial crude inventories, excluding those in the Strategic Petroleum Reserve, decreased by 3.7 million bbl last week. Still, at 470.0 million bbl, stocks were about 4% above the five-year average.
Demand remains below year-earlier levels, though. Total petroleum products supplied over the last four-week period averaged 20.1 million b/d, EIA said, down 2% from the same period in 2022.
