The U.S. will remain the worldâ€™s biggest oil producer this year after overtakingÂ Saudi ArabiaÂ andÂ RussiaÂ as extraction of energy from shale rock spurs the nationâ€™s economic recovery, Bank of America Corp. said.
U.S. production of crude oil, along with liquids separated from natural gas, surpassed all other countries this year with daily output exceeding 11 million barrels in the first quarter, the bank said in a report today. The country became the worldâ€™s largest natural gas producer in 2010. TheÂ International Energy AgencyÂ said in June that the U.S. was the biggest producer of oil and natural gas liquids.
â€œThe U.S. increase in supply is a very meaningful chunk of oil,â€Â Francisco Blanch, the bankâ€™s head of commodities research, said by phone fromÂ New York. â€œThe shale boom is playing a key role in the U.S. recovery. If the U.S. didnâ€™t have thisÂ energy supply, prices at the pump would be completely unaffordable.â€
Oil extraction is soaring at shale formations inÂ TexasÂ andÂ North DakotaÂ as companies split rocks using high-pressure liquid, a process known as hydraulic fracturing, or fracking. The surge in supply combined with restrictions on exporting crude is curbing the price of West Texas Intermediate, Americaâ€™s oil benchmark. The U.S., the worldâ€™s largest oil consumer, stillÂ importedÂ an average of 7.5 million barrels a day of crude in April, according to the Department of Energyâ€™s statistical arm.
U.S. oil output will surge to 13.1 million barrels a day in 2019 and plateau thereafter, according to the IEA, a Paris-based adviser to 29 nations. The country will lose its top-producer ranking at the start of the 2030s, the agency said in its World Energy Outlook in November.
â€œItâ€™s very likely the U.S. stays as No. 1 producer for the rest of the yearâ€ as output is set to increase in the second half, Blanch said. Production growth outside the U.S. has been lower than the bank anticipated, keeping globalÂ oil pricesÂ high, he said.
Partly as a result of the shale boom, WTI futures on theÂ New York Mercantile ExchangeÂ remain at a discount of about $7 a barrel to their European counterpart, the Brent contract on ICE FuturesÂ Europeâ€™s London-based exchange. WTI was at $103.74 a barrel as of 4:13 p.m. London time.
â€œThe shale production story is bigger than Iraqi production, but it hasnâ€™t made the impact on prices you would expect,â€ said Blanch. â€œTypically such a large energy supply growth should bring prices lower, but in fact weâ€™re not seeing that because the whole geopolitical situation outside the U.S. is dreadful.â€
Territorial gains in northernÂ IraqÂ by a group calling itself the Islamic State has spurred concerns that oil flows could be disrupted in the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia. Exports fromÂ LibyaÂ have been reduced by protests, whileÂ Nigeriaâ€™s production is crimped by oil theft and sabotage.
Libya will resume exports as soon as possible from two oil ports in the countryâ€™s east after taking back control from rebels who blocked crude shipments for the past year, Mohamed Elharari, spokesman for the state-run National Oil Corp., said by phone yesterday from Tripoli.
The U.S. will consolidate its position as the worldâ€™s biggest producer in the coming months if returning Libyan supply limits the need for Saudi barrels, said Julian Lee, an oil strategist who writes for Bloomberg News First Word. The observations he makes are his own.
â€œThereâ€™s a very strong linkage between oil production growth, economic growth and wage growth across a range of U.S. states,â€ Blanch said. Annual investment in oil and gas in the country is at a record $200 billion, reaching 20 percent of the countryâ€™s total private fixed-structure spending for the first time, he said.
A U.S. Commerce Department decision to allow the overseas shipment of processed ultra-light oil called condensate has fanned speculation the nation may ease its four-decade ban on most crude exports. Pioneer Natural Resources Co. and Enterprise Products Partners LP will be allowed to export condensate, provided it is first subject to preliminary distillation, the companies said June 25.
The decision was â€œa positive first stepâ€ to dispersing the build-up of crude supply inÂ North America, Bank of America said in a report on June 27. The U.S. could potentially have daily exports of 1 million barrels of crude, including 300,000 of condensate, by the end of the year, according to a June 25 report from Citigroup Inc.