The US oil sector is emerging gingerly from this year’s price crash and may even start increasing output again — so long as an increasingly fractious Opec agrees this week to keep propping up crude prices. West Texas Intermediate, the US crude benchmark, has risen to $45 a barrel in recent days, buoyed by coronavirus vaccine news and expectations that Opec and its partners will keep curbs on supply deep into 2021.
The rally has raised hopes that America’s worst oil crash in decades is coming to an end. A modest recovery in drilling and well-completion activity is underway. “Oil at $45 takes you out of the ICU,” said Ian Nieboer, head of research at consultancy Enverus. “But there is still a ways to go before you declare shale healthy again. That’s why Opec is so important.”
Opec and partners including Russia agreed on record-breaking supply cuts this year under pressure from US politicians. But at current prices, not all cartel members believe such deep supply reductions are still necessary. Members are also wary of allowing another surge in shale output that could overwhelm the market, as happened after the price crash of 2014-15.
US operators added another 10 rigs across the country last week, according to services company Baker Hughes, marking the fourth straight month of rises. But the total remains 60 per cent beneath the level of a year ago.
After Donald Trump’s proclamation early in his presidency of an era of “American energy dominance” based on rising fossil fuel output and exports, the humbling of the country’s oil sector this year has been stunning. US production hit a record high near 13m barrels a day in the first quarter, before the pandemic hit global demand and a Saudi-Russian oil price war brought a wave of discounted supply into the market.
The subsequent price crash bankrupted many American producers, while others slashed spending, sacked workers and idled rigs. Output is now around 11m barrels a day, according to the US Energy Information Administration.