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U.S. crude output growth to slow, oil prices to slump

·3 min read
FILE PHOTO: Pump jacks operate in front of a drilling rig in an oil field in Midland

By Scott DiSavino and Stephanie Kelly

NEW YORK (Reuters) - U.S. oil production is expected to grow more slowly in 2020 and drop outright in 2021, forecasters said this week after U.S. shale producers cut investment plans further when OPEC and Russia refused to steepen output cuts and prices plunged.

Forecasters and international agencies have warned that demand will grow more slowly due to the global coronavirus outbreak, and the International Energy Agency (IEA) said oil consumption would actually drop in 2020. The disease has been classified as a pandemic, and a Reuters tally showed more than 119,100 people infected around the world, with about 4,300 deaths.

The price war between Saudi Arabia and Russia caused oil prices to fall more than 20% this week.

On Monday, the IEA forecast the first decline in annual demand since 2009, saying the virus outbreak led to a massive, 2.5-million-barrel-per-day contraction for the first quarter. The agency cut its 2020 forecast and said demand would contract by 90,000 bpd from 2019.

(GRAPHIC: Oil demand slumps in first quarter 2020 - https://fingfx.thomsonreuters.com/gfx/editorcharts/GLOBAL-OIL/0H001R8FZC9H/index.html)

The sharp downturn in consumption sparked expectations that major oil producers would limit supplies to keep prices afloat and limit fallout from the virus. But Russia refused to support steeper oil output cuts called for by the Organization of the Petroleum Exporting Countries, and instead both former allies said they would raise production.

On Wednesday, OPEC said it believes demand contracted by roughly 1.8 million bpd in the first quarter, mostly due to China, where the coronavirus began.

The U.S. Energy Information Administration (EIA) projected lower oil prices would reduce drilling activity this year, causing U.S. production to decline to 12.7 million bpd in 2021.

"This would be the first year-on-year decline in production since 2016," EIA Administrator Linda Capuano said after the agency released its short-term energy outlook.

On Monday, investment bank Stifel projected the U.S. onshore oil rig count, an indication of future production, will likely drop by around 250 rigs this year. Advisory firm Evercore ISI said that the U.S. rig count will decline more than 25% in 2020.

There were 682 oil rigs active in the United States in the week ended March 6, according to energy services firm Baker Hughes Co <BRK.N>. [RIG/U]

Stifel projected U.S. production could fall to 11.1 million bpd in 2021 from an expected 12.6 million bpd in 2020.

(GRAPHIC: U.S. crude production in the price war era - https://fingfx.thomsonreuters.com/gfx/mkt/13/3245/3206/U.S.%20crude%20production%20in%20the%20price%20war%20era.png)

Major banks also have cut their demand and price forecasts. Goldman Sachs predicted a contraction of 150,000 bpd in global demand, and JBC Energy said coronavirus effects could cut global demand by as much as 500,000 bpd in 2020.

Bank of America reduced its Brent crude price forecast to $45 a barrel in 2020 from $54 a barrel.

(GRAPHIC: Oil price forecasts dim after price war begins - https://fingfx.thomsonreuters.com/gfx/mkt/13/3246/3207/Oil%20price%20forecasts%20dim%20after%20price%20war%20begins.png)

(Reporting by Stephanie Kelly and Scott Disavino; Editing by David Gregorio)