US crude oil production surges
The price of crude oil is beginning to reshape the energy landscape in the United States. The shale resource boom in the past decade that put the country into the premier oil producers’ league is in fear of falling victim to its own success. Shale oil production in the United States not only surpassed the growth of conventional wells in the United States but also overtook many of the primary oil producing regions in the world such as countries that are part of OPEC (Organization of Petroleum Exporting Countries).
According to the Energy Information Administration (or EIA), crude oil production in the United States increased by 67% from January 2009 to September 2014. During the same period, crude oil production in the seven major shale plays increased 258%. In comparison, OPEC oil supplies increased by only 6% from 2009 to 2014.
By contrast, liquids consumption in the United States increased by only 1.2% from 2009 until August 2014.
Why the supply glut is a concern
The glut in the oil supply has resulted in the price of oil falling sharply since its high in June 2014. West Texas Intermediate (or WTI) crude oil price has fallen by ~50% since June. Brent crude oil price during the same period decreased by ~48%.
The slump in crude oil price is expected to take its toll on exploration spending by the oil majors. Some crude oil producers have slashed their capital expenditure plans for 2015. These include Apache Corporation (APA), Continental Resources (CLR), LINN Energy (LINE), and ConocoPhillips (COP).
Some upstream and integrated oil companies, however, have increased their capex (capital expenditures) budgets for 2015. Encana Resources (ECA) revised its capex budget up. We’ll discuss these in detail in the following sections of this series. Some of these companies are components of the Energy Select Sector SPDT ETF (XLE).