Oil: despite the rise, the USA contains an increase in production – 04/08/2024 – Market

US oil prices last week reached their highest levels this year, but weakness in the natural gas market, higher costs and a focus on shareholder returns are preventing shale producers from increasing production in the country, which is the world’s largest producer of oil and gas.

A barrel of Brent oil last week was traded above US$91 per barrel, while in the US, WTI (West Texas Intermediate) futures surpassed US$86 dollars, the highest value since October.

Prices reflect supply risks arising from attacks on Russian oil infrastructure and global shipping, as well as ongoing production cuts by OPEC (Organization of Petroleum Exporting Countries).

In early April, Bank of America raised its 2024 Brent and WTI price outlook to $86 and $81 per barrel, respectively, and said both would likely peak around $95 per barrel. in this summer.

So far, these higher prices have not been enough to motivate U.S. drillers to increase production, operators and service company executives said, as many are facing a sharp decline in the value of gas produced alongside oil.

In Texas, Louisiana and New Mexico, producers were already cutting production in the first quarter due to rising costs. The breakeven price to drill a new well in the Permian, the U.S.’s top shale field, has risen by $4 per barrel over the past year, according to research from the Federal Reserve Bank of Dallas.

Now, low gas prices are creating new challenges.

Henry Hub futures, the benchmark for U.S. gas, are trading below $1.80 per million British thermal units (mmBtu) and earlier this year fell to a three-and-a-half-year low due to hot climate and oversupply.

“We need gas prices to reach $2.50 for there to be an overall increase in activity. Permian customers who have associated gas are seeing terrible differentials,” said Mark Marmo, CEO of oilfield company Deep Well Services.

In West Texas, producers are paying for shippers to receive their gas. Prices at the region’s Waha hub have been below zero in several trading sessions since March, a sign that supply is drastically outpacing demand and pipeline capacity.

Producers can react by reducing their production or paying to continue extracting gas from the ground.

“Constrained pipeline and gas processing plant capacity has acted as a choke point for oil production in parts of the Permian Basin,” said Tim Roberson, president of Permian producer Texas Standard Oil.

“If oil prices are high enough, the price of gas becomes less important in the overall economic considerations for drilling,” he added.

U.S. oil production is expected to grow by 260,000 barrels per day this year, reaching a record 13.19 million barrels per day, but far short of the growth of more than 1 million recorded between 2022 and 2023, according to the Administration. of US Energy Information.

U.S. shale production has persistently exceeded recent estimates, but analysts have not been tempted to raise their growth forecasts in response to higher prices.