• 3 minutes Looming European Gas Crisis in Winter and North African Factor - a must read by Cyril Widdershoven
  • 7 minutes "Biden Targets Another US Pipeline For Shutdown After 'Begging' Saudis For More Oil" - Zero Hedge Monday Nov 8th
  • 12 minutes "UN-Backed Banker Alliance Announces “Green” Plan to Transform the Global Financial System" by Whitney Webb
  • 17 hours Microbes can provide sustainable hydrocarbons for the petrochemical industry
  • 2 hours CO2 Electrolysis to CO (Carbon Monoxide) and then to Graphite
  • 3 hours Hunter Biden Helped China Gain Control of Cobalt Mines in Africa
  • 4 hours NordStream2
  • 22 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 2 hours Building A $2 Billion Subsea Solar Power Cable From Chile To China
  • 4 days Is anything ever sold at break-even ? There is a 100% markup on lipstick but Kuwait can't break-even.
  • 4 days Modest drop in oil price: SPRs vs US crude inventory build
  • 4 days 2019 - Attack on Saudi Oil Facilities.
  • 8 hours "Gold Set To Soar As Inflation Fears Mount" by Alex Kimani
  • 5 days Monday 9/13 - "High Natural Gas Prices Today Will Send U.S. Production Soaring Next Year" by Irina Slav
  • 6 days Ukrainian Maidan after 8 years
Oil Nations Are Selling Billions In Green Bonds

Oil Nations Are Selling Billions In Green Bonds

Environmental, social, and governance investing…

Aramco And Reliance Industries Scrap $15 Billion Refinery Deal

Aramco And Reliance Industries Scrap $15 Billion Refinery Deal

Saudi Aramco and Reliance Industries…

U.S. Rig Count Climbs As Oil Prices Crash

U.S. Rig Count Climbs As Oil Prices Crash

The U.S. oil rig count…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Rising U.S. Oil Production Unlikely To Spoil OPEC’s Party

  • Permian oil production could reach pre-pandemic levels soon
  • Control over the market’s marginal oil supply and oil prices is firmly in the hands of OPEC+
  • Overall, America’s production growth next year is expected to be modest

As oil prices rally, the rig count in the Permian is ticking up and oil production in the basin is set to reach pre-pandemic levels soon. 

The rig count in the top oil-producing shale play is now 136 rigs above what it was this time last year. The Permian is leading the U.S. rig additions and is the key driver of America’s oil production growth, while the other shale basins show either stagnant or slightly declining output. 

Most analysts expect the Permian oil production to reach pre-COVID levels of 4.9 million barrels per day (bpd) by 2022, some say even as early as this month. 

Yet, despite the recovering top shale basin, total U.S. oil production is unlikely to unsettle the global oil market in a meaningful way in the short term. The OPEC+ alliance continues to rule the markets. 

Control over the market’s marginal oil supply and oil prices is firmly in the hands of OPEC+ as U.S. shale producers continue to stick to discipline in spending. Even the largest U.S. shale operator itself—Pioneer Natural Resources—thinks so

This time around, unlike in previous boom-and-bust cycles, the U.S. shale patch is not chasing the high oil prices to increase production to records. This time, listed U.S. oil producers look to regain the trust of investors rather than to “drill themselves into oblivion,” as Harold Hamm warned his fellow oil and gas producers back in 2017. 

This time, it is private oil producers that are ramping up drilling activity and production. But not enough to flood the market with as much oil as to eliminate OPEC+’s firm control over supply balances. At least not yet.  

Every estimate points to rising U.S. oil production next year. OPEC itself sees America adding 800,000 bpd to its oil production, although “uncertainty regarding the financial and operational aspects of US production remains high,” the cartel said in its monthly report this week. 

The EIA currently sees U.S. oil production averaging 11.0 million bpd this year, and rising to 11.7 million bpd in 2022. That’s 700,000 bpd growth on average for next year. 

Overall, America’s production growth next year is expected to be modest, especially compared to the surges in output in 2018 and 2019, which led to a record U.S. oil production of 13 million bpd in February 2020, just before the pandemic crippled demand and crashed oil prices. 

Public shale producers continue to exercise caution in capital budgets for drilling activity, prioritizing returns to shareholders. 

But privately-held drillers—not constrained by investors to ‘show them the money’—are adding more rigs at a faster pace. In recent months, the number of rigs in the U.S. operated by private producers has exceeded the rig count deployed by public oil firms for the first time ever, as per Enverus data cited by Bloomberg

In an odd turn of events, privately held Mewbourne Oil Company had 17 operating rigs as of October 1, more than the 16 rigs operated by ExxonMobil and Chevron combined, Lium LLC rig data quoted by Bloomberg shows. 

At $80 oil, private firms are making handsome profits after having increased drilling in recent months, but some are not replicating this year’s production growth into next year.  

For example, Colorado-based Tap Rock Resources, which operates in the Permian, has nearly tripled its oil production in a year, but it doesn’t see another surge in output next year. 

“We know that you can’t count on $80 forever, so it’d be pretty shortsighted to go chase $80, and by the time you get [the wells] flowing, it’s $60,” Tap Rock Resources’ CEO Ryan London told The Wall Street Journal.

For those private drillers who choose to chase the $80 oil, there is one stumbling block right around the corner. Cost inflation, combined with supply chain and labor constraints, could spoil the private producers’ party by raising the breakeven price for drilling new wells. 

As early as July, Jeff Miller, CEO at top fracking services provider Halliburton, said the company was raising its pricing.

“[W]e saw inflation in many parts of our business, whether it’s maintenance in particular, cost parts, and people to do it,” Miller said on the Q2 earnings call. 

“As our equipment reaches sustained levels of higher utilization in North America, we are now moving from passing on inflationary cost increases to setting net pricing higher. And we expect this trend to accelerate into 2022,” Halliburton’s top executive said.  

Questions remain about the pace of U.S. oil production growth, especially how long the public firms’ discipline will hold and how much privately-held producers will be able to boost their production in light of higher costs. 

Right now, it looks like the U.S. shale patch will not have a say in where global oil prices are going, with OPEC+ firmly in control of the market. OPEC expects 800,000-bpd U.S. growth next year, which likely was one of the reasons why OPEC+ continues to ignore pleas—including from the U.S.—to boost production faster than planned.  

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Mamdouh Salameh on October 16 2021 said:
    A Brent crude oil price of $80 a barrel is higher than the breakeven prices of allshale oil drillers. Therefore it can be tempting for independent shale drillers to increase production. But the volumes they are able to add won’t be big enough to rock the boat in the global oil market or undermine OPEC+ policies.

    While there will be a modest increase in shale oil production this year and next, shale producers will heed the good advice of one of their veterans of ‘not to drill themselves into oblivion’. They need to continue reducing their outstanding debts and pay good returns to their investors. Their cash flow is improving greatly and they, therefore, see no need to upset OPEC+’.

    And while the majority of the shale drillers still look at OPEC+ as their biggest rival, they grudgingly accept that OPEC+’s policies to stabilize and balance the market are benefiting them all as well as its own members.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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