Oil price outlook: US pumps more crude oil as OPEC pays more attention to supply
ExxonMobil corporations and Chevron Corp. capped Big Oil’s earnings season by revealing a breakthrough increase in fossil fuel production – just as OPEC and its allies were preparing to increase crude supplies to the global market.
The rise of the US oil majors has been fueled by pumping record amounts of crude from the Permian basin, which continues to surprise analysts with its annual growth and efficiency gains. Exxon’s oil and gas output was boosted by a $60 billion acquisition Pioneering natural resources Co., grew 24% from a year earlier while Chevron increased output 7%.
American companies are not alone. Cover PLC and BP Plc increased output by 4% and 2% respectively, even as net zero targets were more aggressive than their US rivals.
It all combines with a weak outlook for oil prices, which have fallen about 12% in the past six months due to lackluster demand from China, the world’s largest crude importer. They could fall further if the Organization of Petroleum Exporting Countries implements a plan to restore previously cut output.
The timing also stands in stark contrast to just a few years ago, when executives were scrambling to rein in capital spending during the pandemic and as they faced pressure from the environmental and social movements. and governance to invest in low-carbon alternatives to fossil fuels. Success in the former and failure in the latter have united the industry around a common strategy: oil and gas are cheap enough to withstand any energy transition scenario.
Nick Hummel, analyst at Edward D. Jones & Co. headquartered in St. Louis, said: “Exxon and Chevron are sticking to their core oil and gas strategies while growing stronger in some of the best assets globally.” as oil and gas prices are weakening, especially as OPEC gets ready to move more barrels to market.”
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Exxon, which lost the operational battle to the ESG-leaning No. 1 Engine in 2021, is a prime example of a shift in strategy.
Chief Financial Officer Kathy Mikells said in an interview that acquisitions, divestments, cost cuts and efficiency increases have “doubled” the oil giant’s profit margin per barrel. since 2019, even when oil prices remained unchanged.
And meanwhile, Chevron is pumping 27% more oil and gas than it did a decade ago despite cutting capital spending in half. Much of that is due to the company’s heavy spending on currently operating Australian gas projects, but it also affects efficiency gains and its shift to the Permian. Chevron has doubled production in the basin over the past five years and is now returning record amounts of cash to shareholders.
“We’re getting more efficient in everything we’re doing,” Chevron CEO Mike Wirth said in an interview. “We are getting more for every dollar we spend.”
Growth in US production – now about 50% higher than Saudi Arabia’s – is helping to remove millions of barrels of OPEC oil from the market. Macquarie analysts said in a report that these barrels, combined with new supplies from Guyana, Brazil and elsewhere, could mean 5 million b/d of production capacity “will be available.” in 2025 but currently cannot be produced. They attribute that to a backdrop of “relatively weak” demand growth.
The bank sees Brent crude falling below $70 a barrel, from around $73 currently, unless there are any major geopolitical events.
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Falling prices put pressure on Big Oil’s ability to pay dividends and buy back shares. BP plunged this week after signaling it may reduce buybacks next year amid falling oil prices. But Exxon, Chevron and Shell remain confident they can weather the storm.
Exxon’s projects in Guyana and the Permian, which currently account for about a quarter of total production, can pump crude for less than $35 a barrel, meaning they will remain profitable during a potential downturn.
“The fundamental transformation of our business has positioned us really well in any market environment, but especially a softening market environment,” Mikells said.
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