US Oil Exports May Rise, But Production Isn’t American Oil Exports May Rise, But Production Isn’t

U.S. crude oil exports leaps since Russia invaded Ukraine last year, with Europe becoming the biggest buyer of US crude. The story is pretty much the same as in gas. And the same goes for the production side of this story.

When gas prices fell in December in milder-than-expected weather despite some seasonal cold spells, US gas companies began to curb production. Today, oil companies are doing the same, and this can have even greater consequences, because oil prices are still quite high and because, overall, these companies plan to spend more money this year. . But not on the growth of production.

John Kemp, market analyst at Reuters reported earlier this month as we are currently witnessing the US oil industry’s response to the fall in oil prices that began last summer, noting the lag between the onset of a price decline and the subsequent decline drilling activity.

Kemp said the decline means the U.S. oil industry will see weaker output growth this year and next before a potential return to stronger growth as prices rise. However, prices are by far not the only factor determining investment decisions in the oil sector.

The Wall Street Journal reported last week that many U.S. oil companies plan to spend more money this year but keep production flat or slightly higher. The report lists two main reasons for this: maturing fields and inflation.

Related: Investors fear a change in strategy at the Brazilian oil giant

With natural depletion, the cost of drilling increases and adds to the already higher costs of equipment, services and materials that result from global inflationary trends. These, in turn, are driven by central bank policies that are unlikely to change anytime soon in the US, especially as the Fed indicated at its last meeting.

Thus, the industry faces natural burnout on the one hand and higher costs on the other, while the Fed fights inflation by raising borrowing costs. Meanwhile, the federal government is offering billions in incentives for alternative energy sources, even though President Biden has acknowledged that oil and gas will continue to be needed for decades to come.

In such a context, the oil industry probably has little incentive to try to increase production substantially, so it does not. Industry spends more on lower growth, despite record profits in 2022; or maybe because of them.

For years, American drillers have put all their money into drilling more and more. This made the United States the largest crude oil producer in the world, but it also turned many companies into dead companies when oil prices fell between 2014 and 2016.

Four short years later, the pandemic dealt another blow to the industry, teaching it a valuable lesson: sometimes it’s wiser to focus on something other than production growth, even when prices are high. So producers focused on getting money back to investors and keeping production at current or marginally higher levels.

There is also another reason for this measured and cautious stance on output growth. No drilling inventory is infinite. A review analytical data from the WSJ showed a year ago that many companies in the shale play had less than 10 years of untapped drilling. The greatest players are around 10 years worth. The smaller ones have about three to seven years of top drilling inventory. It makes sense not to rush to empty this inventory.

“You just can’t keep growing at 15-20% a year,” said Pioneer Natural Resources managing director Scott Sheffield. said Last year. “You will dig your inventories. Even the good companies.”

According to Evercore ISI, U.S. shale companies will spend 46% more this year than they spent in 2022. Last year, spending was 30% higher than the year before. Yet this only resulted in a 4% increase in production. This year seems to be playing out the same way, with inflation pushing up spending and, to top it off, wells not always achieving expected productivity.

Meanwhile, demand for US crude will in all likelihood remain robust, especially in Europe. Whether or not this could lead to a price spike similar to the natural gas price spike we saw last year is unclear. After all, the international oil market is much more mature than the LNG market, with much more competition between sellers which would theoretically provide some sort of price cap.

However, with global production expected to tighten later in the year with no substantial increase in production coming out of nowhere, that lid could fall. Yet even if that’s the case, one thing it seems is certain: US oil producers aren’t going to rush into production growth, maybe ever again.

By Irina Slav for

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