Many smart people thought U.S. oil production would fall off a cliff along with the crash in crude prices.
In reality, it hasn’t even come close to killing American production. The U.S. pumped 9.35 million barrels of oil a day in October, according to the latest government statistics available. That’s up from 9.13 million barrels in October 2014.
“Oil production from the U.S. is very resilient, particularly from shale production,” said Bielenis Villaneuva Triana, a senior analyst at Rystad Energy.
Official stats aren’t available yet for the end of 2015 but the Energy Information Administration estimates U.S. production slipped to 9.24 million in December. That’s hardly an all-out collapse.
All of this matters because the 70% plunge in oil prices since mid-2014 has been fueled by an epic supply glut. The oversupply has largely been created by skyrocketing U.S. output, which surged from just 4.6 million barrels per day in October 2005 to a high of 9.69 million last year, according to the EIA.
Many don’t think the oil market will “rebalance” until production from the U.S. and other high cost areas slows meaningfully. It’s clear Saudi Arabia isn’t coming to the oil market’s rescue any time soon out of fear production cuts will cause the OPEC leader to lose more ground.
Why U.S. production has remained strong
The resilience of U.S. oil production has been fueled by a number of factors. First, the cost of drilling keeps getting cheaper thanks to technological innovations made by shale companies and price cuts by servicing firms that provide the drilling equipment.
Secondly, U.S. shale drillers have become vastly more efficient by only drilling their best wells.
There’s also the “ostrich phenomenon.” That’s what Tom Kloza, global head of energy analysis at the Oil Price Information Service, calls U.S. oil producers who continue to aggressively pump oil — in effect digging their head in the sand — rather than admit that prices may remain cheap for a long time.