A sharp drop in the United States’ domestic oil drilling spurred by low prices and scarce funding, resulting from the credit crisis, may delay plans to end reliance on foreign oil. U.S. oil output is expected to rise 8 percent this year to 5.4 million barrels per day. This will be the first increase since 1991 after a six-year rally that resulted in oil prices reaching near $150 per barrel last July. The run-up in prices fed exploration and production projects, according to the U.S. Department of Energy. However, numerous oil drilling projects have collapsed alongside a 65 percent slump in oil prices, putting any increase in domestic output at risk and raising the concern of increased foreign dependence in years to come. Since September 2008, the number of U.S. rigs drilling for oil and natural gas has decreased almost 50 percent, the quickest decline since 1986, according to data from oil services company Baker Hughes. In addition, the U.S. rig count may fall by another 22 percent this year. Investment in finding new reserves or maintaining marginal fields is falling, dimming the prospects for future output.
Oil prices have averaged $42 a barrel this year and are now starting to move over the $50 per barrel mark. Even though rigs have become cheaper and more abundant due to the housing downturn, the cost savings are little consolation to many drillers, since the credit crisis has made bank funding scarce. Non conventional oil exploration including shale drilling is costly, and output in North Dakota, the fifth-largest U.S. oil producer, is already falling.
U.S. oil output peaked in 1970 at 9.6 million barrels per day. Currently, it falls naturally at around 7 percent a year unless substantial new discoveries are found to replace waning fields. Behind in this year’s growth is the start up of British Petroleum’s 250,000 barrel per day Thunder Horse field project offshore Louisiana, which took a decade to develop. Investment bank JP Morgan expects oilfield declines to accelerate by 3 to 4 percentage points in costly U.S. fields.