Top shale producers say they will not significantly increase production even if oil prices rise to $200

2022-05-27 0 By

Shale oil producers in Texas, which led the US shale revolution, have not significantly increased production despite unusually high prices, according to MarketMatrix.net, suggesting that prices may have further to rise.Crude’s rush to $100 usually triggers a drilling frenzy among independent shale producers — but not this year.Influential companies such as Pioneer Natural Resources, Devon Energy and Continental Resources this week pledged to limit production growth to 5 per cent in 2022.In contrast, prior to COVID-19, shale oil production maintained a 20% growth rate.For consumers, the timing couldn’t be worse.Aside from The Organization of The Petroleum Exporting Countries (OPEC) and its Allies (known as OPEC+), which have resisted Joe Bide’s pleas to increase production faster, domestic U.S. Shale Oil is the only source of resilience that can respond quickly to supply shortfalls.But since late last year, shale executives have balked at pleas from the Biden administration to increase oil production.Coupled with rapid growth in global consumption, the conservatism of US drillers could keep oil prices high for some time to come.”Whether it’s $150, $200, $100, we’re not going to change our growth plan,” Vanguard CEO Scott Sheffield said in an interview with Bloomberg TV.Whether the president wants us to increase production or not, I just don’t think the industry is going to increase production anyway.”To be sure, oil production in the United States (USA) will increase significantly this year and is expected to return to pre-pandemic levels by 2023.But that may not be enough to derail oil prices from their upward trajectory any time soon.Listed independent producers such as Pioneer and Devon account for more than half of the 10.5 million barrels per day of U.S. oil production, according to IHS Markit.The rest comes from privately held companies, family businesses and international supergiants, all of which are aggressively ramping up production.ExxonMobil and Chevron, for example, are aiming for shale oil production growth of 25 per cent and 10 per cent respectively this year.Meanwhile, entities funded by private equity firms and family funds now control most of the country’s active RIGS.Heading into this week’s quarterly earnings season, investors are worried about signs of loosening financial discipline among independents.After all, the North American benchmark has surged 22 per cent this year, at one point approaching $96.That is more than double the balanced oil price of the broad-based shale producers.Meanwhile, U.S. retail gasoline prices at the pump are higher than they have been since 2014, an ominous sign in a market that closely tracks the volatility of the crude oil market.But the message from the shale players in the head is clear – they will not repeat the mistakes of the past, flooding the world with cheap oil.Executives said the record cash flow would go straight back to investors through dividends and buybacks.That means U.S. shale producers are leaving a lot of crude in the ground.According to IHS Markit, they could easily increase domestic production by 2 million barrels a day if they chose to go the other way – ploughing windfall profits into new drilling.The current forecast is for the US to add less than 1m b/d to global supply this year.”We’re going to be very thoughtful about increasing our activities,” Rick Munclef, Devon’s chief executive, said in a telephone interview.Let’s face it: we’re all healing, but it’s slowly healing, it’s not going to get there overnight.”Such comments are a far cry from the freewheeling “drill, baby, drill” heyday of earlier this decade, when shale oil upended global oil markets with record output year after year.For the shale-oil founders, they have been through too many bust cycles to get carried away again.The unprecedented plunge in oil prices in 2020 laid bare an industry that has burned through more than $200 billion in the past decade.Even after the rally in oil stocks over the past year, U.S. energy companies account for just 3.6% of the S&P 500, down from more than 12% a decade ago.”The growth experiment failed,” said Jeff Wyer, a senior analyst at Neuberger Berman Group.We are in a new paradigm.”The firm manages $400 billion in assets.According to the latest estimates from the U.S. Energy Information Administration (EIA), Rystad Energy, ESAI Energy and Lium, U.S. oil production will increase by 750,000 to 1 million barrels a day this year.But that is less than a third of the international Energy Agency’s forecast for global demand growth, meaning it will not be enough to keep a lid on oil prices.Vanguard’s Sheffield said only Saudi Arabia (KSA) and the United Arab Emirates (UAE), two producers with large spare capacity, could fill any supply gap.Crucially, U.S. independents remain wary of grabbing too much market share from OPEC+, which has fought two Oil Price wars with shale in less than a decade.”U.S. shale has lost its head-to-head battle with OPEC twice,” said Devon McDermott, an analyst at Morgan Stanley.Independent producers focus on strengthening balance sheets, lowering breakeven prices and returning cash to investors – not looking for growth.”————— Market Matrix: Futures & Derivatives Trading Research Center – Find your best trading opportunities from our selected stream of top news sources like Bloomberg/Reuters /CNBC/WSJ!+++ Top investment banks macro/stock index/crude oil/gold research report and strategy!+++ Economic data/industry report in-depth interpretation!+++ Follow ++ View all resources