Law360 (April 7, 2020, 6:28 PM EDT) -- The combined effects of the novel coronavirus and a Saudi Arabia-Russia price war will cause annual U.S. oil production to decrease for the first time since 2016 and once again make the nation a crude oil and petroleum product importer, the government said in a report Tuesday.
The U.S. Energy Information Administration's monthly Short-Term Energy Outlook said the nation will produce an average of 11.8 million barrels of oil per day in 2020, down from 12.3 million barrels per day in 2019. That would be the first annual decline in U.S. oil production since 2016, and the EIA said it expects production to slide another 0.7 million barrels per day in 2021.
With U.S. drillers pumping out less crude and refineries slowing down due to less demand for gasoline and other petroleum products, U.S. exports will decline to the point where the country is a net importer of crude oil and petroleum products by the third quarter of this year, the EIA said.
In September, the U.S. became a net exporter of crude oil and petroleum products for the first time since records started being kept in 1973, the EIA said.
The U.S. Department of Energy put on a brave face in reaction to the EIA's latest projections, with agency spokeswoman Shaylyn Hynes saying Tuesday that Secretary of Energy Dan Brouillette is confident that the energy markets will recover after the temporary effects of the current downturn.
“Until that time, he will continue to be laser focused on making sure the Department of Energy delivers on the president’s directive to provide relief to the energy industry during this time,” Hynes said.
Brouillette will participate in a virtual G20 meeting Friday to discuss with his global counterparts "the urgent need to restore calm to global energy markets," Hynes said.
Oil prices have tumbled into the $20-a-barrel range, a price collapse that forced drillers big and small to slash production. ExxonMobil Corp., for one, said Tuesday that it would cut its 2020 capital spending by 30%, with its drilling operations in the Permian Basin of Texas and New Mexico bearing the brunt of those cuts.
Oil and gas attorneys are bracing for an accelerated pace of driller bankruptcies. A survey released Tuesday by the Federal Reserve Bank of Kansas City said nearly 40% of drillers would become insolvent if U.S. oil prices stayed at $30 a barrel through the next year.
The Organization of the Petroleum Exporting Countries and its partners are scheduled to hold an emergency meeting Thursday to attempt to reduce production and ease tensions between Saudi Arabia and Russia. Meanwhile, President Donald Trump has floated the idea of imposing tariffs on oil imports, though such a move is opposed by U.S. oil industry groups.
Trump has also directed the DOE to rent out space in the Strategic Petroleum Reserve for U.S. producers to stash their oil as global oil storage capacity grows tight.
A previous DOE attempt to buy oil to fill the Strategic Petroleum Reserve fizzled after funding for reserve purchases failed to make it into the recently enacted coronavirus relief bill. On Tuesday, federal lawmakers from several oil-producing states introduced legislation that would provide $3 billion in funding for reserve purchases.
At the state level, some drillers have asked regulators in Texas and Oklahoma to curtail oil production. The Railroad Commission of Texas will hold a meeting next week on a petition by Pioneer Natural Resources USA Inc. and Parsley Energy Inc. to start a statewide proration of oil production, in which Texas drillers would have to reduce a percentage of their total production in order to align it with market demand.
The last time the RRC issued an oil proration order was in 1973.
--Editing by Emily Kokoll.
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