Surging US Output Takes Oil Market by Surprise

Unexpected Surge in US Oil Output Sends Ripples Through Global Markets | Mr. Business Magazine

Global oil markets are facing increased pressure as prices dip to five-month lows, driven primarily by a record surge in US oil supply. In September, American crude oil production hit an unprecedented 13.2 million barrels per day, surpassing all other nations and constituting about one-eighth of global output. Contrary to official forecasts, these added volumes have raised questions about claims of a constrained US oil industry due to Wall Street or environmental regulations. This surge poses challenges for the OPEC+ oil cartel, leading them to deepen cuts to stabilize falling prices.

The Biden administration, actively promoting fossil fuel phase-out at the UN climate talks in Dubai, is also grappling with discomfort caused by the unexpected surge in supplies. West Texas Intermediate crude recently fell below $70 a barrel for the first time since July, attributed in part to higher-than-expected production from US shale fields.

US Oil Market Anticipations: 

“US supply was probably the biggest surprise of the surprises,” noted Bob McNally, president of Rapidan Energy Group, citing it as the main reason why markets haven’t tightened as anticipated. This stark contrast with three years ago, marked by the pandemic-induced oil price plunge and industry layoffs, challenges concerns about the industry’s decline. Despite fears of its best days being behind it, the US accounts for 80% of the expansion in global oil supply this year.

The Permian Basin in Texas and New Mexico is witnessing the strongest growth, with average oil production per drilling rig reaching 1,319 b/d at new wells, compared to about 183 b/d a decade ago. Corporate dealmaking and increased efficiencies point to further production gains in this prolific oilfield.

New technologies are driving increased productivity, allowing drillers to extract more from the ground. Horizontal drilling and hydraulic fracturing breakthroughs are being leveraged, enabling drillers to bore horizontally for more than three miles through rock. Despite a previous austerity period, US oil supermajors like Exxon and Chevron are now investing heavily, betting on robust future fossil fuel demand.

The surge in drilling activities follows higher prices triggered by geopolitical events, with US natural gas production also reaching a record, surpassing 125 billion cubic feet a day in September. The advancements in technology and continued investment suggest that the shale revolution, while evolving, is still in its early stages, with the potential for further productivity gains.

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