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Oil Prices & Production Recovery

March 5, 2021

Production levels of oil are rising – but have we reached pre-pandemic levels? And what does this mean for the recovery? Catch our newest TrendsTalk episode with ITR Analyst and Speaker Taylor St. Germain to learn more.




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Transcript by Rev

Hi everyone. My name is Taylor St. Germain. Welcome to this edition of TrendsTalk with ITR Economics.

Today I wanted to talk to you all about oil. I'm here in Texas, and it's been a few months since we talked about oil and so I wanted to revisit that conversation here today. The very first thing I wanted to talk about is in January West Texas Intermediate oil prices averaged about $52 per barrel. That number is likely to increase in February as we saw the February daily results come in ranging between the high 50s and low 60s, low 60s towards the second half of the month. We're still waiting on the final revised February figure, but it's likely we're looking at a high 50, low 60 number when you average all of those days throughout February.

Now that's great news in terms of profitability and drilling for the industry. The Dallas Federal Reserve is still reporting breakeven points for new wells between $46 per barrel and $52 per barrel. So really anything 52 and higher suggests that regardless of which basin you're in here in the United States and drilling in, you can be profitable and drill a new well. This is all great news.

What we've seen in recent months in terms of production numbers is that the production numbers are generally rising in terms of the number of barrels that we're producing per day. So back before the pandemic occurred, the US hit a record high of just shy of 13 million barrels per day, looking at about 12.8 million. During the pandemic that daily production number dropped to about 10 million barrels per day at the low point. In the most recent months, we've seen the data improve to about 11.1 million barrels per day. So we have started the recovery process off that low point, but we're still not back above the pre-pandemic levels in terms of production. However, with prices continuing to rise in 2021, which is very likely, it's likely that we'll see production levels continue to increase as we move deeper in this year.

The other important thing to note is that inventory levels are generally declining. Inventory levels were about 540 million barrels at the peak, and then during the pandemic, we dropped down to around that 450 million mark. So we do see declining inventories. We see prices rising. We see higher levels of production. This is all good news as we look out into the foreseeable future.

Now there was a deep freeze in the south that characterized a few weeks in February, and that is likely to result in some interruptions and delays for the industry. Of course, those very low freezing temperatures were troublesome for a lot of the existing wells that were in place and even more troublesome from a logistics standpoint. It was certainly a logistics nightmare with the ice on the roads down here in Texas in those freezing temperatures.

The majority of the reports are saying, even though there is some permanent damage from the freeze, that much of it is likely temporary. I've seen reports saying the recovery should characterize the next four weeks before we're back to normal from those freezing temperatures in the industry, and I've also seen some reports that suggest up to 10 weeks. We, by no means thought this recovery was going to be linear anyway, but we're going to continue to watch how that February data ultimately comes in and adjust our forecast as needed.

But all in all global demand continues to outpace global supply. Oil prices continue to rise. It's good news for the industry. We're projecting better times ahead in 2021, whether it's prices, whether it's production levels or inventory levels still generally declining. So there are a lot of fundamentals that are likely to prevail and push the industry towards a much more attractive 2021.

I hope you found this information helpful. I appreciate you joining me on this episode of TrendsTalk, and I'll talk to you next time.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.