U.S. oil production dropped sharply at the start of the year as exceptionally cold weather for ten days in the middle of January caused widespread freeze offs at oil wells.
Nationwide crude and condensates output was down by almost 24 million barrels or 0.8 million barrels per day (b/d) in January 2024 compared with December 2023.
The monthly decline was the largest since Winter Storm Uri in February 2021 and before that the first wave of the coronavirus epidemic in March and April 2020.
The fall was the ninth largest in over a century since records began in 1920 (a total of 1248 observations) according to data from the U.S. Energy Information Administration (EIA).
For ten days between Jan. 13 and Jan. 23, centred around Winter Storm Heather, temperatures across the Lower 48 states were significantly colder than average for the time of year.
The winter storm caused a relatively large impact on the Permian Basin in Texas and New Mexico with frozen equipment and crews unable to reach well sites.
Consistent with the storm-driven loss of output, there was a temporary dip in commercial crude inventories of 13 million to 17 million barrels between early and late January, almost all reversed by the middle of February.
Most other large monthly declines have also been associated with extreme weather events, including Hurricane Katrina in September 2008 and Hurricane Rita in September 2005.
In every previous weather-related disruption, production has bounced back to pre-event levels within the next one to two months.
In this instance, it is likely crude and condensates production will rebound to December levels over the course of February and March.
But the storm-driven disruption will make it hard to discern if output growth has slowed further following the fall in prices since the middle of 2022.
Production in January 2024 was down by 35,000 b/d compared with the same month a year earlier, after growth of 1.1 million b/d (10%) in December 2023 compared with the same month in 2022.
Growth slowed slightly in the second half of 2023, though more slowly than expected, but the weather-related impact makes it impossible to know if the trend continued into the start of 2024.
So far, the persistent increase in U.S. oil production has frustrated efforts by Saudi Arabia and its OPEC⁺ allies to reduce global inventories and boost prices.
Following Winter Storm Heather, it will be at least a few more months before the effectiveness of the effort is known.
U.S. NATURAL GAS
Gas production also dipped in January as a result of the severe cold weather in the Permian Basin and other areas (“Winter storms have disrupted U.S. natural gas production”, EIA, March 13).
Dry gas output fell by 103 billion cubic feet (bcf) or 3% in January 2024 compared with December 2023, according to EIA data.
Production had still increased by 43 bcf (1%) compared with the same month a year earlier but that was down from growth of 197 bcf (6%) in December.
Like oil, gas production has been slowing in response to the retreat in prices from a high in August 2022 to a multi-decade low in real terms in February and March 2024.
But the weather-driven disruption in January is likely to be reversed in February and March, and makes it impossible to discern whether the slowdown continued at the start of 2024.
Notwithstanding the brief cold snap associated with Winter Storm Heather, strong production combined with a mild winter overall to leave a near-record amount of gas in storage, pressuring prices.
As with oil, the weather disruption means it will be several more months before it becomes clear if output growth is slowing enough to help rebalance the market.
John Kemp is a Reuters market analyst. The views expressed are his own. Follow his commentary on X.
(Editing by Josie Kao)