The United States this year will lose its standing as the world's top crude oil producer as its shale oil drillers are forced out of business by a combination of historically low oil prices and massively slashed demand due to a raging price war and the COVID-19 pandemic.
The demise of the U.S.' standing comes less than two years after a boom in fracking propelled the U.S. to the status as the world's top oil-producing country. In America's shale country, chiefly the Permian basin in Texas and New Mexico, oil company budgets have been slashed, capital investments reallocated and thousands of workers laid off. In the last two weeks alone, 59 rigs have been shut down due to the massive glut of oil flooding world markets.
"We see in this coming month of April what could be a 20 million barrel a day decline in oil demand. It's unprecedented," said Dan Yergin of IHS Markit to CNBC. "That's six times larger than the biggest downturn during the financial crisis period."
This unprecedented oil glut, which has been immensely worsened by a price war between Saudi Arabia and Russia, has helped force crude prices down more than 65% year-to-date. On Monday morning London time, global benchmark Brent crude traded at just $22.78 per barrel and West Texas Intermediate at $20.39 per barrel, their lowest prices in two decades.
Yergin said if the market continues with these low prices, "we'll see a big decline in U.S. oil production. It will no longer be number one." The U.S. became the world's top oil producer in 2018 thanks to the shale oil boom.
Yergin was seconded in his opinion by Edward Bell, commodities analyst at Dubai-based bank Emirates NBD, who thinks it's almost a guarantee that this year the U.S. will certainly lose the number one position.
"And it might happen probably a lot faster than we anticipate," said Bell.
Bell explained the U.S. will lose its top ranking because the current rate of rig closures in the U.S. means about 750,000 barrels per day will be lost from the second quarter onward. Bell said this will take U.S. oil production down from a production of 13 million barrels per day at the start of the year to "down below Saudi Arabia or Russia by the end of the year."
For his part, Yergin said the U.S. can't do anything to either stop of mitigating the ruinous price war between Saudi Arabia and Russia that's led to the Saudis and their allies flooding already saturated markets with more oil.
"The U.S. government doesn't have a lot of tools to address this however beyond diplomacy ... because oil production is controlled and regulated by the states," said Yergin.
