Riding on the shale revolution, the U.S. topped the global energy production charts in 2016 by churning out nearly 15 million barrels per day (MMBbl/d). Retaining its status as the world's No. 1 producer of petroleum and natural gas hydrocarbons for the fifth straight year, U.S. has beaten Saudi Arabia and Russia. America's feat is all the more remarkable as it was achieved despite 2016 output falling year-over-year due to low commodity prices, while the other international heavyweights saw volumes increase.
It must be mentioned that the U.S. became the world’s largest natural gas operator back in 2009 when it went past Russia, while it jumped to the top of the combined hydrocarbons (oil and natural gas) leaderboard in 2013 ahead of Saudi Arabia.
The Shale Revolution
With the advent of hydraulic fracturing (or "fracking") – a method used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals – shale production is now booming in the U.S. Coupled with sophisticated horizontal drilling equipment that can drill and extract oil/gas from shale formations, the new technology is being hailed as a breakthrough in U.S. energy supplies, playing a key role in boosting domestic reserves. As a result, once faced with a looming deficit, oil and natural gas are now available in abundance.
US Production Falls in 2016 But Maintains No. 1 Position
According to the Energy Information Administration (EIA), which provides official energy statistics from the U.S., domestic liquids supply decreased by 300,000 barrels a day last year in the face of depressed crude realizations. U.S. natural gas production fell by 2.3 billion cubic feet per day – the first annual decline since 2005 – again on the back of record low prices, together with a mild winter. Overall, U.S. production of petroleum liquids and natural gas reached an estimated 14.83 MMBbl/d in 2016.
In contrast, both Saudi Arabia and Russia saw their petroleum output increase in 2016. While the former continued with its policy to preserve market share rather than trying to prop up prices by reducing volumes, Russian production increase could be attributed to a rise in capital expenditure, favorable tax regimes and currency effects.
The EIA further added that U.S. petroleum production is forecast to average 15.62 MMBbl/d in 2017 and 16.69 MMBbl/d next year, reversing the declining trend from 2016.
What This Means for Oil Prices
Soaring oil extraction in the U.S. has revolutionized the energy markets, resulting in significantly lower prices amid a surge in supply. At 513.21 million barrels, current crude supplies are up 2.3% from the year-ago period and are in the upper limit of the average range during this time of the year.
With the commodity very well stocked and shale drillers – including ExxonMobil Corp. (NYSE:XOM) , EOG Resources Inc. (NYSE:EOG) , Hess Corp. (NYSE:HES) , Continental Resources Inc. (NYSE:CLR) and Pioneer Natural Resources Co. (NYSE:PXD) among others spending billions – oil prices are down more than 50% in the past 3 years, from $100 per barrel in July 2014 to just above $45 now. Not surprisingly therefore, the 346-company strong Oil/Energy shows up at the bottom of the charts - as #16 out of 16 sectors in the Zacks ranks.
Stock to Buy
In case you are looking for energy names for your portfolio, one could opt for Canadian Natural Resources Ltd. (TO:CNQ) . It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The 2017 Zacks Consensus Estimate for this company is $1.30, representing some 720% earnings per share growth over 2016. Next year’s average forecast is $2.51, pointing to another 93% growth.
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