US oil production forecasts for 2017 and 2018 have been boosted significantly as a result of rising prices as well as improved modeling techniques for predicting output down to the well level.
Crude production is expected to reach 9.53 million barrels per day (bpd) in December 2017, according to the latest forecasts from the US Energy Information Administration (EIA).
Forecast output for December 2017 has been revised up from 8.29 million bpd when the agency prepared its predictions in March last year. The forecasts are contained in the “Short-Term Energy Outlook” EIA publishes every month. Forecast output has been revised higher every month since September 2016.
Revisions are concentrated in output from the lower 48 states, excluding federal waters in the Gulf of Mexico, so they are mostly about shale output, rather than offshore fields and Alaska.
The EIA has revised expected output at the end of 2017 from the lower 48 excluding the Gulf of Mexico up by 1.4 million bpd since March 2016.
Upward revisions stem from a combination of higher oil prices, an increased number of rigs drilling and improvements in methodology. Operators have added many more rigs and produced more oil than the agency was forecasting just six months ago.
Oil prices ended up being $5 per barrel higher in the fourth quarter of 2016 than the agency forecast back in August. Prices in the first quarter of 2017 have so far averaged about $7 higher.
Higher prices have contributed to more drilling, particularly in the Permian Basin of western Texas and eastern New Mexico, raising the current rig count and actual production the forecast uses as a baseline.
Higher rig counts have also revealed new information about the price levels at which operators in certain areas can increase production, which have filtered through to the models that the agency uses.
In addition to the price impact, the agency has made a number of improvements to its methodology.
According to the agency, these changes have been phased in over several months and contributed to the upward drift in the forecasts.
EIA has shifted from basin-level to well-level forecasts and improved its understanding of the time lags between price changes and when operators add drilling rigs.
The agency has also tweaked the model it uses to allow for more interplay between oil and gas prices, allowing the model to select whether drillers will focus on oil or gas depending on price differentials.
Price differentials can be important in shale plays such as Eagle Ford, which have both liquids-rich and gas-rich areas.
Finally, the agency has updated its assumptions about improvements in drilling efficiency, allowing efficiency to change more quickly.
As a result, US production is now expected to pass its previous peak in March 2018 and to reach 10 million bpd by the end of 2018.
• John Kemp is a Reuters market analyst. The views expressed are his own.

Source: Arab News