Getting by without a few million barrels a day of Russian crude oil won't be easy for the global market, but it's gotta be done. One way to help ease the supply shortfall would be for U.S. E&Ps to ramp up their crude oil production, but the oil patch's output has remained close to flat — so far at least. Why aren't producers jumping in? Are the Biden administration’s policies and mixed messages on hydrocarbons putting the kibosh on production growth? Is it a scarcity of completion crews, or pipes or frac sand? Perhaps it’s worries that increasing production would send oil prices sliding and hurt producers’ bottom lines? Or is it all about ESG and the shift by many large investment funds and banks away from anything related to fossil fuels? Possibly all of the above? In today’s RBN blog, we look at what’s really behind the snail’s pace of U.S. crude oil production growth.
Crude oil prices have been ratcheting higher for almost two years now, and spiking into the triple digits in recent weeks. For most of 2020 and ’21, the rise in Brent and WTI was tied to a disconnect between rapidly rebounding oil demand and only modest, measured increases in oil supply. More recently, the lurches in oil prices to points north of $120/bbl — levels not seen since 2012-13 or even 2008 — have been a response to the market uncertainties created by Russia’s invasion of Ukraine and the resulting sanctions against Russia imposed by the U.S. and its allies. So far, the reaction by U.S. E&Ps has been tepid at best.
U.S. oil production peaked at 13.1 MMb/d in March 2020, exactly when COVID-related shutdowns spurred hydrocarbon demand destruction the likes of which the U.S. had never seen (see Figure 1). Wells were shut in, the rig count and production plummeted, WTI “went negative,” and for the next 12-15 months U.S. oil production stayed close to flat at about 11 MMb/d, interrupted only by sharp, downward spikes for hurricanes and Winter Storm Uri in February 2021. Production inched up gradually after that (punctuated by a big drop after Hurricane Ida in August/September 2021), but has remained close to flat since October at about 11.6 MMb/d — 1.5 MMb/d below its pre-COVID peak — and hasn’t budged the last seven weeks.
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