Current oil prices are high enough to warrant increased U.S. shale activity in the second half of the year if prices hold around these levels, according to JP Morgan.
“At current prices, most U.S. onshore operators are economic, leaving a vast group of operators, from large public companies to private players, in good position to ramp up activity in 2H21 and build solid momentum for higher volumes in 2022,” analysts at JP Morgan said in a weekly note as carried by Reuters.
Early on Friday, the spot U.S. benchmark WTI Crude was trading at over $65 per barrel, at $65.76 as of 7 a.m. ET.
Following the largest ever annual collapse in U.S. crude oil production in 2020, the U.S. shale patch is not rushing to ramp up production in 2021, even though oil prices have rallied by 30 percent this year. U.S. producers, especially large listed companies, are expected to stick to capital discipline and reward shareholders rather than ramp up production. However, smaller privately held oil firms are benefiting from higher oil prices as their primary way of generating cash is increased production. This could spoil the oil management policy of the OPEC+ group again.
Most analysts believe that most public companies will stick to discipline. OPEC+ also seems to have gambled on expectations that U.S. shale will look at higher profits instead of production this time - unlike in any of the previous oil price spikes in recent years - when it decided not to raise production from April, except for small increases for Russia and Kazakhstan.
In view of the recent high prices, JP Morgan now expects U.S. oil production to average 11.36 million bpd in 2021, slightly up from 11.32 million bpd last year.
The EIA still sees U.S. crude oil production this year slightly down from last year, at 11.1 million bpd. However, in its latest Short-Term Energy Outlook published this week, EIA expects U.S. production in 2022 at 12.0 million bpd, up by 500,000 bpd compared to the February STEO forecast because of higher expected crude oil prices.
By Tsvetana Paraskova for Oilprice.com
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