Don’t look now, but American oil production is finally starting to rebound. After tapering off following the collapse in crude prices, U.S. crude production rose in August, according to data compiled by the Energy Information Administration (EIA). The FT reports:
From its peak in April 2015, US production had fallen about 883,000 b/d by August, but its decline has been significantly slower than many forecasters expected after the oil price crash triggered a sharp slowdown in drilling activity.
Some US oil exploration and production companies, including ConocoPhillips, Pioneer Natural Resources, Hess and Marathon Oil have low enough costs and strong enough cash flow to be able to drill enough new wells to increase production without tapping the capital markets for additional financing, according to a study published by Wood Mackenzie, the research group, last week.
Chevron, the second-largest US oil company by market capitalisation, said on Friday that its production in the Permian basin shale oil region of west Texas was 24 per cent higher in the third quarter of this year than in the equivalent period of 2014, and was on course for strong growth to beyond the end of the decade.
August’s numbers are the latest monthly data available, and they show a 51,000 barrel per day (bpd) increase over July’s average output. That’s the first significant increase in American oil production since April 2015, when we hit a peak output of 9.63 million bpd. Since then, bargain prices have forced producers to scale production as they’ve shuttered less profitable projects. Most shale production was believed to be in that higher-cost category, and therefore be highly susceptible to cuts in this recently bearish market, but American frackers have shocked the world with their ability to cut costs and innovate ways to stay in the black (and keep pumping the black). Now, with oil prices stabilizing in the $45-51 per barrel range, there’s a sense that the U.S. shale industry once again has its feet underneath it.
With the slide seemingly over, it’s time to look at what’s ahead for American oil producers. On that front, there’s reason for optimism: if—and that’s still a big if—OPEC producers and various other petrostates (like Russia) are able to agree on a deal to coordinate and even cut their production in the coming weeks, oil prices will inevitably rise. If and when that happens, it will be a shot in the arm to the American shale industry, which has proven itself capable of quickly adapting to market conditions. The first step of getting out of a hole is to stop digging, and it seems we’ve done that. Shale producers could shock the world, though, in how quick they’re able to climb out and restart this energy revolution again.