• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 8 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 10 hours The United States produced more crude oil than any nation, at any time.
  • 6 days e-truck insanity
  • 1 day How Far Have We Really Gotten With Alternative Energy
  • 5 days Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 4 days James Corbett Interviews Irina Slav of OILPRICE.COM - "Burn, Hollywood, Burn!" - The Corbett Report
  • 4 days The European Union is exceptional in its political divide. Examples are apparent in Hungary, Slovakia, Sweden, Netherlands, Belarus, Ireland, etc.
  • 6 days Biden's $2 trillion Plan for Insfrastructure and Jobs
  • 6 days "What’s In Store For Europe In 2023?" By the CIA (aka RFE/RL as a ruse to deceive readers)
  • 9 days Bankruptcy in the Industry
Against All Odds American Oil Soars Under Biden

Against All Odds American Oil Soars Under Biden

Under most key metrics, the…

IEA Cuts 2024 Oil Demand Growth Forecast

IEA Cuts 2024 Oil Demand Growth Forecast

Global oil demand growth is…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

More Info

Premium Content

U.S. Oil Exports May Be Rising But Production Isn’t

  • Exports of crude oil from the United States have surged since Russia invaded Ukraine last year.
  • The U.S. oil industry will see lower production growth this year and next before a potential return to stronger growth as prices rise.
  • With natural depletion, then, the cost of drilling increases and is added to already higher costs of equipment, services, and materials that are the result of global inflationary trends.
Roughnecks

Exports of crude oil from the United States have surged since Russia invaded Ukraine last year, with Europe turning into the biggest buyer of U.S. crude. The story is pretty much the same as in gas. And so is the production side of this story.

When gas prices plummeted in December amid milder-than-expected weather despite a couple of seasonal cold spells, U.S. gas companies began to curb production. Now, oil companies are doing the same, and it may have even bigger implications—because oil prices are still quite high and because, on the whole, these companies are planning to spend more money this year. Just not on production growth.

Reuters’ market analyst John Kemp reported earlier this month that we are currently witnessing the U.S. oil industry’s response to the slide in oil prices that began last summer, noting the lag between the start of a price decline and the consequent decline in drilling activity.

Kemp said this decline means that the U.S. oil industry will see lower production 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 are making plans to spend more money this year but keep production either flat or modestly higher. The report listed two big reasons for that: maturing fields and inflation.

Related: Investors Fear Change Of Strategy At Brazil’s Oil Giant

With natural depletion, then, the cost of drilling increases and is added to already higher costs of equipment, services, and materials that are the result of global inflationary trends. These, in turn, are driven by central bank policies that are unlikely to change anytime soon in the U.S., specifically as indicated by the Fed at its most recent meeting.

So, the industry is faced with natural depletion on the one hand and with 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 as President Biden acknowledged oil and gas would continue to be necessary for decades to come.

In such a context, there is likely to be little motivation for the oil industry to try and expand production in any substantial way, so it’s not doing that. The industry is spending more on lower growth, despite their record 2022 profits; or maybe thanks to them.

For years, U.S. drillers put all their money into drilling ever more. This turned the U.S. into the world’s biggest crude oil producer, but it also turned a lot of companies into dead companies when oil prices slumped between 2014 and 2016.

Four short years later, the pandemic served another blow to the industry, teaching it a valuable lesson—that sometimes it’s wiser to focus on something different than production growth, even when prices are high. So, producers focused on returning cash to investors and maintaining production at current levels or only slightly higher.

There’s also another reason for this measured, cautious stance on production growth. No drilling inventory is infinite. A review of analytical data by the WSJ showed a year ago that many companies in the shale patch have less than 10 years’ worth of drilling left untapped. The biggest players have about 10 years’ worth. Smaller ones have about three to seven years’ worth of top drilling inventory. It makes sense not to rush into draining that inventory.

“You just can’t keep growing 15% to 20% a year,” Pioneer Natural Resources’ chief executive Scott Sheffield said last year. “You’ll drill up your inventories. Even the good companies.” 

According to Evercore ISI, U.S. shale companies will spend 46 percent more this year than they spent in 2022. Last year, spending was 30 percent higher than a year previously. Yet it only led to a 4-percent increase in production. This year appears to be shaping up in a similar way, with inflation pushing expenses higher and, to top it all, wells not always delivering on expected productivity.

ADVERTISEMENT

While this is happening, demand for U.S. crude will, in all likelihood, remain robust, especially in Europe. Whether or not this could see a surge in prices similar to that in natural gas prices that we witnessed last year is unclear. After all, the international oil market is a lot more mature than the LNG market, with a lot more competition among sellers that would theoretically provide a sort of lid on prices.

However, with global production set to tighten later in the year with no substantial production increase coming from anywhere, that lid might fall off. Yet even if it does, one thing is for sure, it seems—U.S. oil producers are not going to rush into production growth, possibly ever again.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Mamdouh Salameh on March 02 2023 said:
    US oil production isn’t rising because shale oil which contributes 64% to US oil production is a spent force. Shale producers have been giving various excuses in the aftermath of the pandemic for failure to increase production meaningfully.

    However, the real reason has far less to do with capital discipline and overwhelmingly everything to do with the fact that the lucrative and cheap to produce sweet spots in the shale plays have already been exhausted forcing drillers to move to poor and costly to produce spots thus causing production costs to rise and production to decline.

    Moreover, whatever crude oil the US is exporting is not real exports since these exports are an exchange between the extra light crude the US exports and the medium and heavier crudes it imports for its refineries which are tooled to refine then heavier crudes.

    In 2022 the United States consumed on average 20.36 million barrels a day (mbd) and produced on average 11.7 mbd according to the US Energy Information Administration (EIA). This means that the United States’ net crude oil imports in 2022 amounted to 8.66 mbd and this is expected to rise to more than 9.0 mbd in 2023.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News