Should U.S. Shale Producers Resist Increasing Output?

Following a tumultuous 2020, U.S. shale producers face a new dilemma of ramping up production in the face of global oil supply uncertainty. With West Texas Intermediate (WTI) trading above $50/barrel, there is significant temptation for shale producers to surge their output, however, the constant growth strategy of previous years may prove to be costly at this juncture. Daily production is still down about 2 million barrels per day (bpd) from the same time last year, but many industry leaders are calling for a cautious approach to ramping up production again.

Map: US Oil And Shale Gas Plays - Business Insider

Scott Sheffield, the CEO of Pioneer Natural Resources, recently stated “I really don’t see much increase in the Permian Basin or the U.S. shale over the next several years…I never anticipate growing above 5% under any conditions.” These types or sentiments can be disheartening, albeit necessary, to protect the U.S. shale industry from damaging itself in the long term. Historically, shareholders supported reinvesting cash flow to increase production, but now the shareholders’ sentiments have shifted and they want returns on their investments, not more oil.

Another factor in the current U.S. shale dilemma is the recent OPEC+ cuts. OPEC+ has acknowledged that their agreed upon cuts have opened the door for U.S. shale to increase production and capture market share, but the international cartel and in particular Saudi Arabia, has shown a willingness to flood the markets with oil in effort to beat back the competition. Adding to the oversupply uncertainty is the new Biden administration signaling that they will sign a new nuclear deal with Iran, presumably leading to a massive influx of Iranian crude oil on the open market. Libya is also working on their pipeline infrastructure to increase production, leading to even more uncertainty about near-to-midterm supply. All of these factors point to U.S. shale producers taking a more cautious growth approach, something that would never have even been considered over the past few years.

Written by:

Guttman Energy Daily Market Update Disclaimer – The information contained in this market update is derived from sources believed to be reliable; however this update could include technical inaccuracies or typographical errors and Guttman Energy does not guarantee the accuracy, completeness or reliability of this update. FURTHERMORE, THIS UPDATE IS PROVIDED “AS IS,” WHERE IS, WITH ALL FAULTS AND WITHOUT ANY WARRANTY OR CONDITION OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY. GUTTMAN ENERGY ALSO SPECIFICALLY DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES. YOU USE THIS UPDATE AT YOUR SOLE RISK. This update and any view or comment expressed herein are provided for informational purposes only and should not be interpreted in any way as recommendation or inducement to buy or sell products, commodity futures or options contracts.