US Crude Production Surges, Reshaping Tanker Markets

The Tanker Market Report dated 19.01.2024 discusses the unexpected growth in US crude production in 2023, surpassing initial projections. The surge was fueled by smaller, privately financed companies, while larger public companies exercised caution. Increased production led to higher crude exports, with Europe receiving a significant share. However, prospects indicate a slowdown in growth rates for US crude production, impacting crude tanker trade, reports Gibson.

Beating expectations

Back in January 2023, the US Energy Information Administration (EIA) envisaged US crude production growing by 550kbd over the year. The reality however has beaten all expectations, with the country’s output increasing by 1.01 mbd according to the latest assessments. There also was strong growth in Natural Gas Liquids (NGL) production, which gained by 490kbd YoY. The surge in output has been primarily underpinned by smaller companies financed by private capital, driven by higher oil prices since the Russian invasion of Ukraine; whilst bigger, public companies displayed an element of discipline, perhaps not willing to repeat the mistakes of the past, when they ramped up production during a high oil price environment which ultimately contributed to lower prices.

Last year’s increase in crude production naturally led to stronger crude exports, with shipments up by circa 650kbd, according to Kepler. The lion’s share of augmented production unsurprisingly headed to Europe, with an extra 400kbd shipped transatlantic. Yet, US Gulf-Asia crude trade also saw incremental growth, rising by almost 200kbd over the same period, benefiting largely VLCCs. Ironically, VLCCs also were the main beneficiaries of increases in trade to Europe, with their share of that market increasing from 22% in 2022 to 35.5% in 2023.

Going forward, however, the prospects for US crude production are more challenging. Production is still expected to grow on the back of increased well productivity, but absolute growth rates are likely to slow.  The US EIA expects crude output to rise by 300kbd this year and by another 200kbd in 2025, well below the growth rates seen in 2023. The administration also anticipates a dramatic slowdown in NGL production growth, to below 100kbd per year both in 2024 and 2025.

In contrast, the International Energy Agency (IEA) sees stronger growth next year; however, they also anticipate a slowdown in growth rates. Their latest estimates suggest US crude production will increase circa 440kbd next year, whilst NGLs will grow by 290kbd, bringing the total US supply gain in 2024 to 730kbd, half its growth rate last year. Much smaller gains are anticipated in light tight oil production, as the effects of lower activity levels and reduced inventory of drilled but uncompleted (DUC) wells are felt by the industry. According to Baker Hughes Rig Count data, drilling activity in Q4 2023 was around 20% below its level in Q3 2022.

The IEA also highlights challenges and uncertainty in the shale sector by pointing out the results of the latest quarterly Dallas Fed Energy Survey, which indicated that business activity and sentiment remained low. Additionally, larger producers stated that their targets in 2024 were to acquire assets and reduce debt, whilst smaller producers said their priority is to maintain or grow their output. If these projections prove to be correct, then inevitably the growth in crude tanker trade out of the US Gulf ought to slow down, although any decline in the US crude refining runs will benefit export activity.

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Source: Gibson

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