Global Brent Crude Oil Prices January 2020 – November 2022
Source: International Monetary Fund via U.S. EIA, Federal Reserve Economic Database
How did U.S. oil production respond to the oil market turbulence and uncertainties since COVID? The chart below shows U.S. monthly production of crude oil since January 2020. Note that in early 2020, U.S. oil production decreased by approximately 25%, from 12.8 million barrels per day in January to only 9.7 million barrels per day in May. Why? The graph above shows that the market price of oil drastically dropped from approximately $65 per barrel in December 2019 to nearly $25 per barrel in April 2020 as the demand for oil decreased due to the economic shock caused by COVID. When oil prices tank then oil profits decline, and there is much less incentive for oil production. In 2020, the oil industry had one of its worst years ever as oil prices sank, with many companies reporting losses for the year including ExxonMobil and Shell.
U.S. Field Production of Crude Oil (Thousand Barrels per Day) (Source: U.S. Energy Information Administration)
Year
Jan
Feb Mar
Apr
May
Jun
Jul
Aug Sept
Oct
Nov
Dec
2020 12,852 12,842 12,797 11,914 9,713 10,442 11,006 10,577 10,921 10,457 11,196 11,168 2021 11,124 9,925 11,326 11,305 11,356 11,356 11,347 11,277 10,918 11,569 11,790 11,634 2022 11,369 11,316 11,701 11,668 11,629 11,797 11,873 11,975 As the economy began to recover in 2020, oil prices rose, and generally so did oil production. Oil prices doubled from their low in April to approximately $50 per barrel by yearend, with production increasing nearly 15% from a low of 9.7 million barrels per day in May to 11.1 million barrels per day in December. Oil prices generally rose gradually in 2021 before peaking at $83 per barrel in October and declining to $75 per barrel by December. Oil production rose approximately 5%, ending the year at 11.6 million barrels per day in December compared to 11.1 million barrels per day in December 2020. Oil production continued to increase in 2022, from 11.3 million barrels in January to nearly 12 million barrels per day in September. However, production was still less than the pre-COVID January 2020 level of 12.8 million barrels per day. It’s a balancing act for oil companies, as oil prices are affected by both supply and demand. The major focus of oil companies is to maximize profits and returns for shareholders. Increasing output may increase revenues and profits; however, increasing the supply of oil can also lower global oil prices and consequently lower profits. The volatility of the oil market, an expected economic slowdown, trends toward alternative energy, and plummeting oil prices in 2020 created a cautious environment for increasing production. In 2022 the focus on maximizing profits led to record company profits with ExxonMobil reporting its highest quarterly earnings ever in the third quarter and Shell reporting its highest quarterly earnings ever in the second quarter. The International Energy Agency expects the net income for the world’s oil and natural gas producers to double in 2022 from 2021, to a record high of $4 trillion - quite a turnaround from two years ago.
Central Wisconsin Report - Fall 2022
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