The United States is seeing unprecedented levels of oil production this year, and 2024 may see new highs. This will increase pressure on Saudi Arabia to take back control of oil pricing.
According to analysts at Rapidan Energy, US output is expected to average 13.3 million barrels per day in 2019, which is higher than the all-time record of 13.2 million barrels set in September and up from the average of 13 million in 2023.
This is happening at the same time as US oil majors Exxon Mobil and Chevron, who are investing heavily in the Permian Basin, the centre of the shale boom, recently announced hikes in their capital spending budgets for 2024.
Saudi Arabia and Russia, two OPEC+ countries that have been finding it difficult to raise oil prices, have lowered their output at the same time that the US has been producing record amounts of oil.
Some analysts have expressed concern that the Saudis would change their strategy and flood the oil market with supplies, just as they did in 2014 in an attempt to force US producers out of the market by lowering prices and decreasing the profitability of output.
Doug King, chief investment officer of the Merchant Commodity Fund, told Bloomberg that “OPEC’s strategy looks fragile” and that a more “logical plan” would include unleashing a flood of supplies to drive down prices once more. Other analysts have echoed this viewpoint.
According to Bob McNally, president of Rapidan Energy, “we do not currently expect OPEC+ will flood the market to stifle US shale growth.” McNally sent a Business Insider email. “Ministers remain optimistic that supply-demand fundamentals will be together than many traders expect, helping to support prices.”
Nevertheless, there is no denying the explosive rise in US oil. Exxon and Chevron have announced mega-mergers this year to acquire leading shale producers, in addition to their increasing investment.
According to Hunter Kornfeind, an oil analyst at Rapidan, “the Permian is going to be the engine of growth not only this year, but in years going forward.”
The increased spending of the energy giants indicates both the boom in US oil production and the changing nature of the US energy market.
In previous cycles, Kornfeind noted, oil firms would spend almost 100% of their profits produced into capital expenditures to drill new oil. This is why the growth is not as great. Currently, their expenses account for between 40 and 50 percent of their income.
This indicates a shift in the goals of US oil firms, which now prioritise the returns to shareholders via dividends and buybacks.
McNally stated that OPEC’s primary longer-term danger isn’t US shale output, which Saudi Arabia had targeted in 2014.
“OPEC is more concerned about inadequate investment in supply than too much shale,” he stated. “It’s important to note that OPEC does not share the IEA’s peak demand view and therefore thinks shale oil growth is less of a threat.”