Energy
Monday, October 16th, 2023 2:13 pm EDT
Key Points
- U.S. Crude Oil Production Reaches All-Time High: The U.S. Department of Energy announced that U.S. crude oil production had reached a historic high of 13.2 million barrels per day, effectively recovering from the losses incurred during the Covid-19 pandemic.
- Concentrated Oil Production Recovery: The recovery in oil production is concentrated in the Permian Basin region of Texas and New Mexico, where production costs are among the lowest in the country. Production remains down in other states and offshore drilling areas, reflecting regional variations in the oil industry.
- Short-Term Gains vs. Long-Term Trends: While the short-term outlook for the oil industry is positive, there is increasing pressure on the industry to address long-term trends in carbon reduction and alternative energy sources. Meeting climate goals will involve shifts in energy use, even as demand from older cars and chemical applications continues to support the oil industry. Short-term cash flow concerns and fluctuations in oil prices remain key challenges for the industry.
The U.S. Department of Energy announced that U.S. crude oil production reached an all-time high of 13.2 million barrels per day, surpassing Covid-era losses of over 3 million barrels per day. The recovery of the U.S. oil industry can be attributed to several factors, including renewed demand and higher oil prices, with WTI crude rebounding from less than $15 a barrel during Covid to around $90 per barrel. However, the resurgence of Big Oil is more concentrated in regions with low production costs, particularly the Permian Basin in Texas and New Mexico.
Capital discipline and cost containment efforts have not disappeared, even with oil prices around $85 to $90 a barrel. While U.S. oil production has fully recovered, the number of active rigs remains lower than in 2018, thanks to higher productivity per well. Companies are merging to boost their presence and productivity, with Exxon Mobil and Pioneer Natural Resources announcing a $60 billion deal. Further mergers are expected, especially in shale, where independent producers face pressure to maintain high dividends.
Texas, with its relaxed regulatory environment, is becoming a hub for oil production, while offshore drilling in other areas, like climate-conscious Colorado, lags behind. While the short-term outlook for oil companies is positive, the long-term trajectory of the oil market is influenced by efforts to reduce carbon emissions and shift to alternative energy sources. Demand for oil from older cars and its use in chemicals will continue, but the risk of a declining industry will drive drillers to focus on shale rather than offshore drilling. Short-term concerns include fluctuating cash flows in the industry, but oil prices remain the dominant factor.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/10/15/us-oil-is-back-and-exxons-60-billion-deal-isnt-the-biggest-signal.html
