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$100 oil isn’t necessarily a good thing for the U.S. shale oil industry, several U.S. oil industry executives said this week, according to Bloomberg.
$100 oil could hurt the United States’ shale industry.
Pioneer Natural Resources CEO Scott Sheffield sees oil prices hanging around between $75 and below $100 per barrel. Any more than that—at $110 or $120—Sheffield said, and it would be no help to the industry.
Ed Morse, global head of commodities at Citigroup, said if oil reached more than $100, it wouldn’t stay there for long. That’s because those high prices are a trigger for U.S. shale companies to invest in ore oil and gas exploration—and more oil and gas exploration means more production, and more production means tipping the market to one of more supply and building inventories.
As it stands now, oil inventories in the United States drew down nearly 75 million barrels of crude oil last year, pushing prices upward as demand came roaring back after severe pandemic losses.
Despite this tightening market and rising prices, shareholders are still not eager to have oil companies return to heavy production growth. And for now, U.S. oil and gas companies have obliged, focusing on buybacks, debt consolidations, and dividend payouts.
But if prices go much beyond $100 per barrel, it could prove to be too tempting for U.S. oil companies—including those in the Permian—to ignore.
Travis Stice, CEO for Diamondback Energy, agrees that $100 oil could signal U.S. oil companies to grow production, contrary to the desire of shareholders.
“Eighteen months ago, we were in a global apocalypse for the energy sector, and now you’re talking about outsized returns. We should all pause and recognize the Tectonic shifts that is in capital allocation,” Stice told Bloomberg.
WTI was trading at $77.24 on Wednesday afternoon.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.
The reasons are the fact that the sweet spots in US shale plays have already been exhausted leaving behind poor or less productive spots, steep decline of 70%-90% in the first three years of production and productivity decline. US oil production in which shale oil contributes an estimated 60%-70% is projected to dwindle to 5-6 million barrels a day (mbd) within 7-10 years.
However, a fair price for Brent crude, in my opinion, ranges from $100-$120 a barrel. Such a price is good for the health of the global economy as it stimulates the three chunks that make up the economy, namely global investments, the economies of the oil-producing nations and the oil industry.
Moreover, such a price range will be commonplace by 2030 as the bulk of the world’s crude oil supplies will come from the Arab Gulf region, Venezuela’s Orinoco belt and Russia’s Arctic.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London