EIA Projects US Output Decline Will be Market-driven

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The Unites States will produce less in 2020 and 2021, but not as a result of coordination of supply, but due to crowding out part of an expensive supply due to prolonged low- price environment. The current situation prevents producers from maintaining or increasing output, and recent indicators of drilling activity in the USA confirms the trend for decline.

Market-driven shift to new equilibrium was also reflected in the latest short-term energy outlook of the US Department of Energy (EIA) released on April 7. In its updated short-term forecast, the agency expects that output in the US will decrease by only 470K b/d in 2020, although an extra growth by 770K b/d was projected in the report a month ago.

In 2021, according to the EIA estimates, production may drop another 730K b/d compared to 340K b/d from the previous forecast.

The market was definitely upset by these figures as the forecast implies (reasonably or not) that the United States will slash production by only 470K b/d in 2020, while at the same time, Russia and OPEC are pressured to deliver at least 10 million b/d immediate cut to counter crashing demand. At the same time, market-driven supply adjustment implies that the US will see only gradual decline in production with losers leaving (or being taken over), making the industry even healthier than before:

There are definitely no signs of cooperation of US with OPEC and Russia in EIA projections.

Here is EIA’s WTI spot price forecast:

According to the agency’s calculations, the price will rise above $ 40 mark only in 2021.

The latest API report showed that stocks rose 11.9 million barrels last week, which is not surprising given that refineries were loaded by 82.3% of their operating capacity.

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