Oil prices have reversed course once again due to persistent short-selling by money managers. As of 11:40 a.m. ET on Thursday, Brent crude futures for December delivery were priced at $77.24 per barrel, while West Texas Intermediate (WTI) crude was trading at $73.72 per barrel. This represents a notable decline from last Monday’s two-month highs of $81.12 for Brent and $77.91 for WTI.
The recent price rally had been fueled by indications from Washington that Israel might target Iran’s oil facilities. However, short sellers have significantly increased their positions against oil and gas stocks in the S&P 500. In September, these short positions rose to 446.57 million from 434.71 million in August. Notably, short positions on Brent crude have now surpassed long positions for the first time ever. Among the most shorted oil and gas stocks are EQT Corporation, APA Corporation, Valero Energy, Occidental Petroleum, and Devon Energy.
Concerns about oversupply are largely driving the negative sentiment in the market. Last month, the Financial Times reported that Saudi Arabia might abandon its unofficial price target of $100 per barrel for crude oil as it prepares to increase production. This shift indicates the kingdom’s acceptance of a prolonged period of lower oil prices. Initially, Saudi Arabia and seven other OPEC+ members planned to roll back production cuts starting in October. However, a two-month delay raised questions about the timing of this increase, causing Brent prices to dip below $70 per barrel amid renewed demand fears and a sluggish Chinese economy. The Financial Times reported that Saudi Arabia remains committed to increasing production as scheduled on December 1, regardless of market conditions, to avoid losing market share to non-OPEC producers like the United States.
The U.S. Energy Information Administration (EIA) has recently released its Short-Term Energy Outlook (STEO), forecasting that U.S. crude oil production will rise to 13.7 million barrels per day (bpd) and marketed natural gas production will average 114.3 billion cubic feet per day (Bcf/d) by 2025. Much of this growth is expected to come from the Permian Basin in western Texas and eastern New Mexico. This region benefits from productivity gains, new infrastructure, and high crude prices that will support increased output.
Since early 2023, the Permian Basin has had more active drilling rigs than the rest of the Lower 48 states. Operators have been completing hundreds of wells each month. In the Permian, higher production rates from new wells are offsetting declines in output from existing wells, leading to an overall increase in crude oil and natural gas production. The EIA reports that newly completed wells in the Permian produced an average of 433,000 bpd in their first full month as of July 2024. Natural gas production from new Permian wells averaged 780 million cubic feet per day in July 2024, more than compensating for declines from existing wells.
This growing productivity suggests that Permian operators are effectively using advanced drilling and completion techniques. These include longer lateral lengths, optimized well spacing, and improved fracturing designs. The EIA forecasts that crude oil production in the Permian will rise by 430,000 bpd from 2023, reaching 6.3 million bpd in 2024 and 6.6 million bpd in 2025, driven in part by these productivity improvements. Similarly, the agency expects marketed natural gas production in the Permian to increase by 1.9 Bcf/d in 2024 and 1.0 Bcf/d in 2025, averaging 25.8 Bcf/d in 2025. Most of this natural gas production is linked to oil-directed wells.
Meanwhile, Goldman Sachs has projected that U.S. crude output will increase by 500,000 bpd this year, which is a slower pace compared to last year’s rise of more than 1 million bpd. Nevertheless, the U.S. is expected to account for 60% of non-OPEC production growth, with the Permian Basin alone forecasted to grow by 340,000 bpd, down from an earlier estimate of 520,000 bpd by Goldman Sachs.
According to Goldman Sachs, technological advancements and efficiency gains have driven nearly all growth in the Texas-New Mexico shale basin since 2020. However, the bank has cautioned that “the Permian is maturing, and its deteriorating geology will impact crude oil production in the future.” Goldman predicts that output per rig will continue to grow as industry consolidation increases the share of more productive rigs and as technology improves.
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