<\/div>\n<\/figure><\/div>\n
The U.S. energy industry has been able to \u201cmaximize wells by increasing drilling productivity rates,\u201d said Flynn. \u201cThey are the best in the world in squeezing more blood out of the turnip.\u201d<\/p>\n
EIA methodology<\/h2>\n
A change in the EIA\u2019s calculation methodology has also played a key role in the rise to record output.<\/p>\n
The EIA said it periodically reviews its domestic oil production data and if it finds a large difference between its monthly Short-Term Energy Outlook report, trends in survey-based domestic output in its Petroleum Supply Monthly report, and other current data, it may \u201cre-benchmark\u201d the weekly production estimates. <\/p>\n
For the week ended Oct. 6, the re-benchmarking resulted in estimated volumes increase of 370,000 barrels a day, or 2.8% of the week\u2019s estimate production total.<\/p>\n
So the higher output number is \u201creflective of an accounting or methodology change for EIA, which has generally underestimated crude-oil output,\u201d Tom Kloza, global head of energy analysis at OPIS, a Dow Jones company, told MarketWatch. It also \u201cspeaks to the inaccuracy of judging crude-oil production via rig counts.\u201d<\/p>\n
The number of active U.S. rigs drilling for oil rose by 4 to 501 for the week ended Oct. 13, but it\u2019s down from 610 a year ago, according to data from Baker Hughes
\n BKR,
\n +0.10%<\/bg-quote>.<\/span>\n <\/p>\nThere was a sizable uptick in the oil-rig count last week, but those in the oil industry have been cutting back, said Flynn, because they don\u2019t want to make a lot of longer-term decisions given the \u201cerratic\u201d U.S. energy policy.<\/p>\n
U.S. crude-oil production is expected to average 12.92 million barrels a day this year, up from 11.91 million barrels in 2022, with output forecast to rise to 13.12 million barrels a day in 2024, according to the EIA\u2019s latest monthly estimate. <\/p>\n
Kloza pointed out that when U.S. output is added to Canadian and Mexican oil production, the total from the continent of North America would be \u201cknocking on the door of 20 million barrels a day.\u201d<\/p>\n
\u201cTo me, that is a number that renders accusations of a low [U.S. Strategic Petroleum Reserve] and compromised energy security as silly anachronistic babble,\u201d he said. The emergency oil reserve has fallen to a historically low level after the Biden administration last year announced the largest-ever release from the SPR to help combat high gasoline prices in the wake of Russia\u2019s invasion of Ukraine.<\/p>\n
U.S. and Canadian production can continue to rise, said Kloza. \u00a0\u00a0<\/p>\n
Oil risks <\/h2>\n
Meanwhile, investors fret over a potential escalation of the Israel-Hamas war.<\/p>\n
If the conflict spreads to include Iran, which has been a backer of Hamas and of Hezbollah in Lebanon, Iran\u2019s 3 million barrels a day of production could be at risk, said Stewart Glickman, energy equity analyst at CFRA Research.<\/p>\n
Read<\/strong> Israel-Gaza war scenarios: Here\u2019s what might lift oil prices to $95, $100 and $115 a barrel<\/p>\nOil prices on Wednesday rose sharply as a deadly explosion at a Gaza City hospital raised tensions across the region.<\/p>\n
Before the war began earlier this month, there was a strong reason to believe that as part of a potential cooperation agreement between Israel and Saudi Arabia, the Saudis would have been willing to increase its oil production in an effort to lower oil prices, said David Grumhaus, president and chief investment officer at Duff & Phelps Investment Management. <\/p>\n
The agreement would have been helpful to take some of the momentum out of oil prices, but the loss of it is not a \u201cgame-changer,\u201d he told MarketWatch.<\/p>\n
Duff & Phelps believes the Saudis would like to see oil between $80 and $100 and that they will adjust their production to try to keep it there, Grumhaus said. <\/p>\n
For now, oil is pricing in concerns about the possibility of the conflict spreading across the Middle East, which \u201ccould jeopardize Iranian supply and other Middle East oil infrastructure\u201d and could also curtail traffic in the Strait of Hormuz, where one-third of seaborne oil passes through, he said. <\/p>\n
The market is also \u201cvery torn about the likelihood of a recession,\u201d would could push oil prices lower, though if the Israel and Middle East continue to deteriorate, oil prices could push up to $100, said Grumhaus.<\/p>\n
Read:<\/strong> There\u2019s less to oil-price spike than meets the eye as Israel-Hamas war worries rise<\/p>\nNear that triple-digit price level, the Saudis would likely try and manage prices down, he said, adding that the \u201chigher oil goes the more likely an economic recession is to materialize.\u201d <\/p>\n
Incentive for shale plays<\/h2>\n
In the U.S., the risks to oil in the Middle East may provide incentive needed to boost production further.<\/p>\n
Given the uncertainty surrounding Iranian output, investment in the Permian and other shale plays may move higher, said Kloza.<\/p>\n
On Oct. 11, Exxon Mobil
\n XOM,
\n +0.02%<\/bg-quote>
\n announced plans to buy Pioneer Natural Resources Co.
\n PXD,
\n +0.11%<\/bg-quote>
\n for $64.5 billion, including debt. <\/p>\nSome may believe that if Exxon Mobil brings its portfolio of technology to Pioneer\u2019s acreage, that would enable better resource recovery, said Glickman. However, the combination of the two companies would still be just 13% of total Permian production, on a barrels of oil equivalent per day basis, and the \u201cindustry by and large has followed a really disciplined path on new supply,\u201d he said.<\/p>\n
Given that, Glickman doesn\u2019t anticipate a massive increase in U.S. crude production from the merger. Also, keep in mind that the Permian, a shale basin that spans parts of West Texas and southeastern New Mexico, has high production decline rates, \u201cso just staying flat on production takes a fair bit of effort.\u201d<\/p>\n
Whether Saudi Arabia and Russia would be willing to accommodate a \u201cmassive loss of market share\u201d to the likes of Exxon Mobil and Pioneer, is another question, said Glickman.<\/p>\n
Oil prices reached notable highs on Sept. 27, when U.S. benchmark West Texas Intermediate oil
\n CL.1,
\n +1.08%<\/bg-quote>
\n settled at $93.68 a barrel on the New York Mercantile Exchange, the highest in more than a year, while global benchmark Brent crude
\n BRN00,
\n +0.87%<\/bg-quote>
\n ended at $96.55 a barrel on ICE Futures Europe, the highest since November. <\/p>\nIf the U.S. oil community really did grow massively, helped by ExxonMobil\u2019s technology applied to more acres, Glickman said he would expect the Saudis to \u201cflood the market with oil, temporarily, to force prices lower and get some weaker hands to fold.\u201d<\/p>\n
The merger, meanwhile, also shows that the industry is betting against some predictions for a peak in oil demand.<\/p>\n
The move \u201cshows that the demand for fossil fuels is going to be with us for a long time, and Exxon Mobil has been right in betting against those who predicted that the demand for oil was going to top out or peak,\u201d said The Price Futures Group\u2019s Flynn.<\/p>\n
Still, don\u2019t expect U.S. production to save the day, said Duff & Phelps\u2019s Grumhaus. <\/p>\n
<\/p>\n
<\/p>\n
\n
\n \u201c<\/span>\u201c At this point, the world is really reliant on the Saudis and perhaps a handful of other OPEC producers to address the supply side of the equation.\u201d \u201d<\/span>\n <\/p>\n
\n \u2014 David Grumhaus, Duff & Phelps Investment Management<\/span>
\n <\/small><\/p><\/div>\n<\/p><\/div>\n\u201cProducers remain very disciplined in their spending, and if you look at the rig count, production is likely to grow at best very slowly,\u201d he said. \u201cThe Exxon\/Pioneer deal and additional consolidation may help a little, but we do not see producers changing their mindset.\u201d<\/p>\n
\u201cAt this point, the world is really reliant on the Saudis and perhaps a handful of other OPEC producers to address the supply side of the equation,\u201d said Grumhaus.<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"As the global oil market focuses its attention on the oil-supply risks tied to the war between Israel and Hamas, U.S. production has climbed to its highest level on record and it\u2019s expected to continue its rise next year. That\u2019s a \u201ctestament to the ingenuity of the U.S. oil-and-gas industry,\u201d said Phil Flynn, senior market […]<\/p>\n","protected":false},"author":1,"featured_media":74498,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-74497","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\n
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