U.S. oil firms focused exclusively on the shale patch are expected to only marginally increase their combined production this year compared to 2020, according to Bloomberg Intelligence data of listed companies—a sign that OPEC+ could be right, at least for now, that $70 oil would not unleash a massive production increase from the United States.
According to Bloomberg Intelligence data, the largest listed U.S. shale firms who have no production outside America are set to raise their production from 6.5 million barrels per day (bpd) in 2020 to 7.2 million bpd in 2021—a modest increase compared to the previous two boom-and-bust cycles.
Most public U.S. shale firms continue to vow strict capital discipline, although oil prices have rallied this year and WTI Crude is currently trading at over $65 per barrel. Major listed companies promise that any excess cash flow will go to additional payouts to shareholders, who have seen years of meager returns while the shale patch was chasing drilling and production records.
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.
The plans of smaller shale drillers remain “an open-ended question,” Michael Tran, Managing Director, Global Energy Strategy at RBC Capital Markets, told Bloomberg. Related: Oil Bulls Beware: This Optimism Is Unjustified
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, JP Morgan said last week.
“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.
The EIA still sees U.S. crude oil production this year slightly down from last year, at 11.1 million bpd in 2021 compared to 11.3 million bpd in 2020. However, in its latest Short-Term Energy Outlook published last 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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A combination of the pandemic and reckless production caused the shale industry to lose an estimated 6.5 mbd according to my calculations. Shale oil production fell from 7.6 million barrels a day (mbd) to 1.1 mbd (though the EIA has owned up to 3 mbd loss). If you add this to a conventional oil production estimated at 4.99 mbd, then total US production is 6.09 mbd.
The crucial situation facing the US shale industry is that its fate is now in the hands of OPEC+. Were OPEC+ to go for market share, prices will fall and this will immediately and very adversely impact on shale oil production.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London