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June 10, 2015 9:00 AM, EDT

US Oil Production to Peak at 43-Year High Before Trailing Off

Brittany Sowacke/Bloomberg News

U.S. oil output will peak at a 43-year high in 2015 as producers work through a backlog of uncompleted wells before trailing off in the second half of the year.

Production will increase to 9.43 million barrels a day this year, the most since 1972, the Energy Information Administration said June 9 in its monthly Short-Term Energy Outlook. That’s 240,000 barrels higher than last month’s estimate. Monthly output will fall in June through early 2016.

The United States is producing more oil this year even as the number of oil rigs slid to the least since August 2010 in response to last year’s price crash. Prices still are high enough to support drilling in key shale formations in such states as North Dakota and Texas.

“Production has increased as producers work through the backlog of uncompleted wells,” EIA said in the report. “Projected 2015 oil prices remain high enough to support continued development drilling in the core areas of the Bakken, Eagle Ford, Niobrara and Permian basins.”

The increase in this year’s production forecast reflects revisions to estimated output in the first quarter, EIA said. Oil production in May reached 9.59 million barrels a day, also the highest level since 1972.

“U.S. oil production since mid-2014 has been more resilient to lower crude prices than many had expected,” EIA Administrator Adam Sieminski said in an e-mailed statement.

West Texas Intermediate crude, the U.S. benchmark, slid 46% last year. Prices have rebounded about 40% from a six-year low in March.

The benchmark U.S grade will average $55.35 a barrel this year versus the May projection of $54.32, EIA said. Prices will average $62.04 next year.

 

EIA lowered its 2015 Brent crude estimate to $60.53 from $60.79. The European benchmark will average $67.04 next year, the agency said.

The U.S. oil rig count fell to 642 last week, down from 1,609 on Oct. 10, according to Baker Hughes Inc. Horizontal drilling and hydraulic fracturing, or fracking, have unlocked supplies in shale formations in states including North Dakota and Texas.

Oil production will start to decline in the second half of this year, “largely attributable to unattractive economic returns in some areas of both emerging and mature onshore oil production regions,” EIA said. Output will rebound in the second half of 2016, returning to an average of 9.6 million barrels in December.

Total output next year is forecast to reach 9.27 million barrels a day.

Crude output from the prolific tight-rock formations will shrink 1.3% to 5.58 million barrels a day this month, based on EIA estimates from the monthly Drilling Productivity report released June 8. It’ll drop in July to 5.49 million, the lowest level since January.

EIA said gasoline at U.S. pumps will average $2.44 a gallon in 2015, up from last month’s estimate of $2.43. The average retail price fell to $2.745 a gallon on June 8 nationwide after reaching $2.759 on June 3, the highest level since December, according to Heathrow, Florida-based AAA, the biggest motoring group in the United States.