US Cut Forecast for Oil Output Just Before Crude’s Latest Plunge

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Oil and Gas Storage

 Oil Production

• 2025 Forecast:
  • The EIA projects U.S. crude oil production to average 13.42 million barrels per day (bpd) in 2025, a downward revision from the prior forecast of 13.51 million bpd.
  • Total liquid fuels production (including crude oil, natural gas liquids, and biofuels) is expected to average 21.2 million bpd in 2025, up from 20.7 million bpd in 2024.
  • Growth is primarily driven by the Permian Basin, which accounted for nearly all of the 270,000 bpd increase in 2024 and is expected to continue leading, though at a slower pace due to declining rig counts and lower oil prices.
  • The Federal Gulf of America (formerly Gulf of Mexico) is projected to produce 1.80 million bpd, Alaska 0.42 million bpd, and the Lower 48 states (excluding Gulf) 11.39 million bpd in 2025.
• Key Influences:
  • Lower Oil Prices: Brent crude is forecast to average $68 per barrel in 2025, down from $81 in 2024, exerting downward pressure on drilling activity. West Texas Intermediate (WTI) is expected to average $64 per barrel.
  • Tariffs and Costs: U.S. tariffs announced in April 2025, along with retaliatory tariffs (e.g., China’s 34% on U.S. imports), increase costs for steel and equipment, discouraging shale drilling. This led the International Energy Agency (IEA) to cut its U.S. oil supply growth forecast by 150,000 bpd to 490,000 bpd for 2025.
  • Rig Count Decline: Posts on X and industry reports note a ~15% drop in U.S. frac crew counts in 2025, particularly in the Permian, signaling reduced activity.
  • Technological Efficiency: Despite fewer rigs, well productivity improvements (e.g., AI, electronic hydraulic fracturing) sustain output, especially in the Permian.
• Recent Trends and Sentiment:
  • February 2025 production was 13.16 million bpd, 191,000 bpd below the EIA’s STEO forecast, indicating potential overestimation.
  • X posts suggest bearish sentiment, with some users predicting production declines of 500,000 bpd by September 2025 and a possible Texas recession due to falling rig counts and shut-ins.
  • The EIA’s May 2025 STEO notes flat production in the near term, with May output at 13.37 million bpd and June at 13.4 million bpd.
• Uncertainties:
  • New U.S. sanctions on Russia (January 2025) and potential sanctions on Iran could tighten global supply, indirectly supporting U.S. production but not yet factored into forecasts.
  • Trade tensions and tariffs introduce demand uncertainty, particularly in Asia, reducing global oil demand growth projections to 730,000 bpd in 2025, half of which is attributed to U.S. and China slowdowns.
  • The IEA warns that U.S. shale growth may slow further due to economic constraints, despite Trump’s push to maximize output.

Natural Gas Production

• U.S. Energy Information Administration (EIA):
  • Brent Crude: Expected to average $68 per barrel in 2025, down from $74 in the March 2025 forecast and $81 in 2024. The price is projected to decline further to $61 per barrel in 2026 due to rising global oil inventories starting mid-2025.
  • West Texas Intermediate (WTI): Forecast to average $64 per barrel in 2025, down from $70 in earlier projections, and $57 per barrel in 2026.
  • Reasoning: The EIA cites strong non-OPEC+ production growth (led by the U.S., Canada, Brazil, and Guyana), slower global demand growth (0.9 million bpd in 2025), and OPEC+ unwinding voluntary production cuts, leading to inventory builds of 0.6–0.7 million bpd in Q2–Q4 2025.
• International Energy Agency (IEA):
  • Brent prices are expected to remain under pressure due to a projected 1 million bpd surplus in 2025, even if OPEC+ maintains current cuts. Prices fell to near three-year lows around $70 per barrel in March 2025, with further downside risks if OPEC+ increases output as planned.
  • The IEA lowered its global demand growth forecast by 300,000 bpd to 730,000 bpd for 2025, citing trade tensions and weaker economic growth.
• Other Analysts:
  • Goldman Sachs: Predicts Brent at $56 per barrel in 2025, a $3 reduction from prior forecasts, due to high spare capacity and recession risks.
  • Citi: Suggests Brent could average $60 per barrel or dip to $50 per barrel if OPEC+ does not deepen cuts, driven by slowing demand and robust non-OPEC+ supply.
  • Long Forecast: Projects Brent to peak at $100.89 per barrel in March 2025 but decline to $83.81 by December, with a range of $73.84–$100.89.
  • WalletInvestor: Forecasts WTI to reach a high of $85.56 in July 2025 but fall to $78.64 by December.
  • Standard Chartered: Contrasts with bearish views, arguing no inevitable supply glut, with U.S. production growth slowing to 367,000 bpd in 2025, potentially supporting higher prices if Brent exceeds $85 per barrel (OPEC+ breakeven for many members).

• Brent futures are trading around $65–$66 per barrel, down 13% year-to-date.
• WTI futures are near $61.25 per barrel, down 14% year-to-date.

• Global Supply:
  • The EIA forecasts global liquid fuels production to increase by 1.3 million bpd to 104.4 million bpd in 2025, driven by non-OPEC+ countries (1.2 million bpd growth), particularly the U.S., Canada, Brazil, and Guyana.
  • The IEA projects global supply growth of 1.2 million bpd in 2025, down 260,000 bpd from prior estimates due to reduced U.S. and Venezuelan output. Non-OPEC+ supply is expected to rise by 1.3 million bpd.
• U.S. Production:
  • The EIA’s latest Short-Term Energy Outlook (STEO, April 2025) projects U.S. crude oil production to average 13.42 million bpd in 2025, revised down from 13.51 million bpd due to lower oil prices and tariffs increasing drilling costs.
  • Production is expected to peak at 14 million bpd in 2027, driven by the Permian Basin, before declining as shale productivity wanes.
  • The IEA revised U.S. supply growth downward by 150,000 bpd to 490,000 bpd in 2025, citing tariffs and a $65 per barrel breakeven for shale drilling.
• OPEC+ Production:
  • OPEC+ plans to increase output by 411,000 bpd in May 2025, tripling prior targets, though actual increases may be lower due to overproduction by members like Kazakhstan and Iraq.
  • The EIA expects OPEC+ production to remain flat in 2025 compared to 2024, with a 0.5 million bpd increase in 2026 as cuts unwind.
  • If cuts are not extended, prices could face further downward pressure, with some analysts warning of Brent dipping to $50 per barrel.

• EIA:
  • Global liquid fuels consumption is forecast to grow by 0.9 million bpd to 104.1 million bpd in 2025, down 0.4 million bpd from the March STEO, and 1.0 million bpd in 2026. Growth is below pre-pandemic trends due to trade tensions and slower economic growth.
  • Non-OECD Asia (India: +0.3 million bpd, China: +0.2 million bpd) drives most demand growth.
• IEA:
  • Global demand growth is projected at 730,000 bpd in 2025, revised down by 300,000 bpd, and 690,000 bpd in 2026, reflecting trade disputes and macroeconomic fragility.
  • Q1 2025 saw robust demand growth of 1.2 million bpd year-on-year, the strongest since 2023, but future growth is tempered by tariff impacts.

1. Trade Tensions and Tariffs:
   • U.S. tariffs (10% universal, higher on some countries) announced April 2, 2025, and China’s retaliatory 34% tariffs on U.S. imports increase costs for shale drilling (e.g., steel, equipment), reducing U.S. production growth.
   • Tariffs are expected to slow global economic growth, lowering oil demand by 400,000 bpd in 2025.
2. OPEC+ Policy:
   • OPEC+’s decision to accelerate production increases (411,000 bpd in May, potentially 800,000 bpd over two months) adds downward pressure on prices.
   • Some analysts (e.g., Standard Chartered) argue OPEC+ may delay cuts until Brent exceeds $85 per barrel, needed by members like Saudi Arabia to balance budgets.
3. Geopolitical Risks:
   • U.S. sanctions on Russia (January 2025) and potential sanctions on Iran and Venezuela could reduce global supply by up to 1 million bpd, supporting prices.
   • Middle East tensions and Syrian unrest pose risks but have not yet disrupted supply.
4. U.S. Shale Dynamics:
   • The Permian Basin drives U.S. growth, but rig counts are down 15% in 2025, and breakeven costs for new shale wells are around $65 per barrel, making low prices unsustainable for expansion.
   • The EIA projects a shale peak in 2027 at 10 million bpd, followed by a decline to 9.33 million bpd by 2050.
5. Demand Uncertainty:
   • Slower demand growth in China and the U.S., coupled with rising electric vehicle adoption, caps consumption.
   • Cold weather in Q1 2025 boosted demand, but trade disputes and economic slowdowns temper the outlook.

• Bearish Sentiment:
  • Posts on X and analyst reports (e.g., Citi, JPMorgan) reflect expectations of oversupply, with Brent potentially falling to $50–$60 per barrel if OPEC+ increases output and demand weakens further.
  • The EIA and IEA emphasize inventory builds starting Q2 2025, driven by non-OPEC+ growth outpacing demand.
• Bullish Counterarguments:
  • Standard Chartered and some X users argue that U.S. production declines (potentially 500,000 bpd by September 2025) and OPEC+ restraint could push Brent above $90 per barrel, especially if China’s 7% growth target drives demand.
  • Geopolitical disruptions or weather-related shut-ins (e.g., North American cold snaps) could tighten markets, as seen in January 2025 when Brent hit $81 per barrel.

The EIA has revised some of its predictions on oil and gas prices, and we are seeing reports that vary from $50-$60 if OPEC+ follows through with its production increase, to the prediction of the U.S. declines in production to have the price roll to $90.

Today, we had some articles discussing Saudi Arabia’s budget requirements of $90 to pay for their projects. I think that the numbers in some publications indicate that they could get by with $80 and borrow money for the short term.

All of this to say, I am still a bull. The numbers look to be in the $80 to $85 range if we have a stable return on trade between Asia, India, and the United States. If China can remain flat we will see the $80 range. The $90 is too high, but it may spike to that point depending on how the United States production is handled.

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