A year after the pandemic and the disagreement within OPEC + over supply management that crushed oil prices, the industry finds itself at an all-too-familiar crossroads: OPEC’s bet that the American shale “drill, baby, drill” is gone forever will it be accurate this time around? ? Analysts seem to agree that this is a safe bet, at least for this year, as the U.S. shale as a whole will maintain the promised spending discipline. As a sign that spending beyond cash flow is a thing of the past, major listed producers are now saying increasing output for growth would be a big mistake. Instead, they promised to return more liquidity to shareholders.
US oil production may never return to the weekly peaks of 13 million barrels per day (bpd) just before last year’s stock market crash. But it is already leveling off at around 11 million b / d, or 1 million b / d above the May 2020 lows when producers cut production in response to insanely low oil prices – and negative for one. day -.
Drilling activity has been on the rise since fall 2020, and given the lag between rising oil prices, the addition of oil rigs and actual oil production, it is expected that the American oil production Gradually increases until the end of this year.
True, average U.S. production in 2021 is expected to be lower than average production in 2020 by nearly 300,000 bpd, according to Latest EIA estimates. However, this year – with WTI crude prices expected to remain above $ 55 a barrel – U.S. oil production is expected to rise from an average of 10.9 million bpd in the second quarter to nearly 11.4 million bpd. in the fourth quarter, the EIA said in its April press release. Short Term Energy Outlook (STEO). In the fourth quarter of next year, US oil production is expected to exceed an average of 12 million b / d, to 12.18 million b / d.
Related: Investors Rush To Oil Stocks Despite ESG Push Even if US production does not return to 13 million bpd – ever – US producers could once again undermine the OPEC + Group’s oil market management plans.
The big listed producers promise restraint, and the market, and even OPEC +, believe that the restriction will indeed be the case for the US oil industry this year.
However, $ 60 of oil increases production too tempting for private operatorsbecause higher production and cash flow help them grow and pay off debt, without Wall Street blowing them away if they spend within their means.
Spending discipline, or how long U.S. producers can resist the siren song of $ 60 oil, will determine whether U.S. oil production exceeds expectations later this year.
“If prices remain stable at around US $ 60 / bbl for the remainder of 2021, operators will have the opportunity to generate free cash flow and prove to investors that they are capable of making money back. shareholders after poor results in 2020. However, since prices have increased, the number of platforms in the United States Lower 48 has also increased significantly, as have production levels in the United States ”, Andrew Folse, analyst oil and gas at GlobalData, a data and analytics company, mentionned this week.
Related: Saudi Arabia Focuses On Hydrogen
Discipline holds so far this year, with US operators more disciplined than other oil companies around the world.
“Surprisingly, this means the US E&P is more disciplined in 2021 than its international counterparts,” analysts at Raymond James said in a spending survey, as reported by Natural gas intelligence.
“No one will change course for the moment. We’re only one quarter in the year, ”Robert Polk, senior analyst on Wood Mackenzie’s US business research team, mentionned last month.
“The second quarter earnings announcements in July and August will likely be the first that we could see companies start to revise their capital spending plans, if their discipline doesn’t hold up,” Polk added.
OPEC + also appears to be betting that U.S. output growth for growth is over, to the point that Saudi Energy Minister Prince Abdulaziz bin Salman, mentionned in early March, “‘Drill, baby, drill’ is gone forever.”
“Drill, baby, drill” may be gone forever, but “all American oil and gas companies appreciate” the “Brilliant” way OPEC + managed the market balances, Occidental Managing Director Vicki Hollub said this week.
Oil at $ 60 is undoubtedly a comfortable price point for American shale. The more OPEC + takes care not to lower prices by relaxing cuts too much, the more comfortable American producers will be with their spending and drilling activities. OPEC + will follow closely and respond with production increases to the potentially faster-than-expected recovery in US production. But the alliance will also need to be careful not to ease cuts any further sooner than the market demands, as a further fall in U.S. shale through collapsing oil prices will also cause producer budgets to fall. OPEC, which remain too dependent on oil revenues, have yet to recover from the price collapse of last year.
By Tsvetana Paraskova for OilUSD
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