A couple of recent forecasts have projected sizeable increases in U.S. shale oil production this year, sparking optimism for an industry that has for the last two years maintained a culture of discipline and caution. According to the industry itself, caution will prevail. Marathon Oil has no plans to boost production this year, Petroleum Economist reported last month, despite booming oil prices. Pioneer Natural Resources also made it clear it was not going to change its strategy because of prices, with its chief executive Scott Sheffield saying on several occasions that a change of strategy was highly unlikely for both his company and most of the industry.
"Even if the president wants us to grow, I just don't think the industry can grow anyway," Sheffield said in February, and it appears his sentiment has not changed since then, reiterating the statement in March, when prices were even higher.
This is not to say that production isn't growing. It just appears to be growing more slowly than some would have liked, including the federal government, which is trying to curb retail fuel prices by any means necessary. Most recently, the Biden administration announced the release of a historic 180 million barrels of crude from the strategic petroleum reserve over the next six months. Even that only had a short-lived effect on prices.
Yet the 180 million barrels to be released from the SPR would then need to be replenished, which means that the need for additional U.S. production might become even more urgent than it is now.
According to the Energy Information Administration, U.S. shale oil production will rise by 132,000 bpd next month, to reach 8.65 million barrels daily, the authority said in its latest Drilling Productivity Report. Yet the EIA's forecast for the full year was recently revised down, to a total of 12.01 million bpd at the end of the year, versus an earlier forecast of 12.03 million bpd.
Related: U.S. Exports Oil From SPR Release: Report
In all fairness, the revision is not a very substantial one, but it is still a downward revision, which reflects the sentiment of shale executives cited above. In the meantime, the inventory of drilled but uncompleted wells is shrinking fast.
The EIA reported this week that shale producers in the Permian have been going through their DUC inventory for 20 months in a row. DUC utilization rates are an important indicator of the health of the shale industry because they are the ones that can be put into operation the fastest. That they are being utilized is good news. The bad news is that new well drilling is lagging far behind DUC utilization.
According to the EIA, the DUC inventory in the Permian fell to 1,309 in March. This is the lowest DUC count since February 2017, and the imbalance could eventually lead to a slowdown in production growth.
One reason for shale drillers' reluctance to expand production is shareholder sentiment. But this is true only for public drillers, although they are the biggest players in the shale patch. There are other factors, too, including labor shortages, material and equipment shortages, and, most recently, steel prices, which have spiked, dragging with them the prices of steel tubing for newly drilled wells.
The U.S. government needs a fast increase in oil production before the November elections. Many private shale drillers are obliging because the interests of the government this time align with theirs, and with prices so high, the temptation is too great to ignore. But most of the biggest shale patch players are sticking to caution, and they may well need a lot higher prices to throw it to the wind, if they ever do.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More