U.S. oil drillers are pumping more crude as international prices remain elevated amid supply uncertainty and demand strength.
Citing industry experts, Reuters reported today that continuing supply chain disruptions and labor shortages are being trumped by optimism about demand, and analysts are revising their U.S. oil output forecasts upward.
According to consultancy East Daley Capital, the U.S. will end 2022 with oil production averaging 12.86 million bpd, increasing 1.29 million bpd from 2021. Most of this will come from the Permian Basin, the star performer of the shale patch.
According to pipeline operator Enterprise Products Partners, U.S. oil production will reach 12.4 million bpd this year, up by 800,000 bpd from 2021.
At the same time, the Energy Information Administration recently revised down its U.S. oil production growth this year, saying it expects the national total at 12.1 million bpd at the end of 2022, versus earlier projections of 12.3 million bpd.
The EIA noted higher production costs, higher labor costs, and inflationary pressures as the reasons behind its revision of output growth.
"The supply-chain issues and shortage of materials are unprecedented," said one industry respondent to the quarterly Dallas Fed survey of the oil industry.
"We are also facing serious workforce issues because a meaningful portion of the labor force left the industry during the downturn and due to the vilification of the oil and gas industry."
Even so, benchmark U.S. oil prices are a lot higher than drillers' breakeven levels, stimulating an increase in activity. In March, filings for drilling permits for the Permian reached 904, according to Rystad Energy. At the same time, the rate of completing drilled but uncompleted wells is also on the rise, according to official U.S. data.
In the Permian, last week saw a total drilling rig count of 332, which was the highest since April 2020.
By Charles Kennedy for Oilprice.com
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What is strange is that both Brent crude and WTI prices have been far higher than US shale oil breakeven price for the majority of drillers and still no increase in shale production happened.
We will soon find out whether these claims are hype or real.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London