Oil markets experienced volatile trading on Wednesday, with Brent crude for January delivery first falling and then recovering after Donald Trump defeated Kamala Harris in the U.S. presidential race. Wall Street has expressed concerns that a second Trump term could hurt oil prices. Some believe that producers would be more eager to drill and increase output without the regulatory burden seen during President Biden’s term. However, other analysts argue this view is flawed.
Commodity experts at Standard Chartered say U.S. oil production, especially shale oil, has changed significantly since Trump took office in 2017. The bank points out that U.S. crude production reached an all-time high of 13.4 million barrels per day (mb/d) in August 2024, surpassing the previous record of 13.31 mb/d set in December 2023. Since the pandemic’s low point in May 2020, U.S. production has increased by 4.7 mb/d, but it is only 0.4 mb/d higher than the pre-pandemic peak in November 2019, reflecting an annual growth rate of just 80,000 barrels per day (kb/d). The growth rate is expected to slow further in 2024 and 2025. Standard Chartered forecasts that U.S. liquids supply grew by 1.605 mb/d in 2023, but will slow to just 630 kb/d in 2024 and 300 kb/d in 2025.
The bank also highlights the challenges of sustaining long-term supply growth. U.S. oil production is largely controlled by a few major companies, along with independent and private firms, rather than by a national oil company like those in OPEC countries. These companies have shifted away from aggressive drilling strategies, focusing instead on maintaining capital discipline. They now prioritize returning capital to shareholders through dividends and buybacks, rather than ramping up production.
Additionally, mergers and acquisitions in the oil sector have reduced the number of operating companies, leading to larger, more contiguous drilling areas. This shift has allowed for more efficient drilling techniques, including multi-pad wells with long lateral sections, optimizing spacing and infrastructure. These advancements have helped production continue to grow despite a decline in the rig count.
Standard Chartered’s views align with those of Goldman Sachs. In July, Goldman Sachs predicted that U.S. crude output would increase by 500,000 barrels per day (bpd) in 2024, a slower pace compared to last year’s growth of over 1 million bpd. Despite this, the U.S. is expected to account for 60% of non-OPEC production growth, with the Permian Basin contributing 340,000 bpd, down from an earlier estimate of 520,000 bpd. Goldman Sachs attributes most of the growth in the Permian to technological and efficiency improvements but cautions that the basin is maturing. The bank warned that declining geology in the Permian could eventually reduce production. The rig count in the Permian has fallen nearly 15% from its peak in April 2023 and is 30% lower than the 2018-2019 average. Goldman Sachs expects the rig count in the Permian to fall below 300 by the end of 2025.
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