The Department of Energy reported today that U.S. oil production for the week ending Aug. 2 averaged 7.56 million barrels per day (bpd), which is the highest output of U.S. crude oil in any week since the end of December 1989, more than 24 years ago (see chart below). U.S. oil production during the last week of July was higher than the same week a year ago by 21.6%.
Amazingly, in just the last two years, oil production in "Saudi America" has increased by more than 2 million bpd (and by 37%), from 5.53 million bpd during the last week of July in 2011 to 7.56 million bpd last week, and has completely reversed a multi-decade decline in U.S. oil output (see chart). It took more than 20 years for U.S. oil output to gradually decline by 2 million bpd between 1989 and 2011, and then only 24 months to completely reverse that multi-decade decline with a 2 million bpd increase in oil output between July 2011 and July 2013.
With a continuation of the current, double-digit percentage increases in domestic crude oil production, it's very likely that U.S. oil output will exceed 8 million bpd by early next year (for the first time since the fall of 1988), and could possibly surpass 9 million bpd by the end of next year (for the first time since early 1986). Those estimates are consistent with the Department of Energy's most recent upwardly revised forecast that U.S. crude oil production will average 8.2 million bpd in 2014.
Related: Largely as a result of the increases in U.S. petroleum exports and decreases in imports through June, both Scott Grannis and Brian Wesbury's group at First Trust Portfolio are now predicting that U.S. real GDP growth for Q2 will be revised upward to 2.5% (from the BEA's original estimate of 1.7%). Here are details from First Trust:
The big story here is what is happening to energy production in the U.S. The U.S. has been experiencing a boom in energy production and exports over the past few years because of the technological advances in horizontal drilling and fracking, meaning a larger share of what we consume is produced domestically. In turn, we are importing much less. In fact, exports of petroleum products are up 11.2% over the past year while imports of petroleum products are down 12.6%. We expect this trend to continue and have a major impact on the trade picture. Led by fuel oil and petroleum products total exports reached an all-time high in June.
We have been arguing for years now that technological advances, not just in energy, are driving growth, so this June trade number is just the kind of positive surprise we have been expecting. Look for an upward revision to 2.5% for Q2 GDP growth.
Bottom Line: A 2 million bpd increase in U.S. oil output in only 24 months to the highest level in nearly a quarter century, almost exclusively from the dramatic increases in shale oil production made possible by revolutionary drilling technologies, is an important energy milestone and has to be one of the most remarkable success stories in the history of U.S. energy production. As further evidence that America's energy sector is making a major contribution to the U.S. economy, we can now expect a significant upward revision in real GDP growth for Q2 to 2.5%, thanks in large part to "Saudi America's" shale oil boom.