By Mitchell Ferman
November 26, 2024
(Bloomberg) -- Oil and gas producers in the US will not raise output significantly in the coming years despite calls from President-Elect Donald Trump to “drill, baby, drill,” said Exxon Mobil Corp.’s Upstream President Liam Mallon.
“I think a radical change is unlikely because the vast majority, if not everybody, is primarily focused on the economics of what they’re doing,” Mallon said on Tuesday at a conference in London.
Trump is expected to open up federal lands for more oil and gas drilling, but much of the land in the country’s largest oil and gas producing state, Texas, is private. Still, there’s plentiful federal land in neighboring New Mexico which includes the oil- and gas-rich Permian Basin.
“If those rules were substantially changed, you would be able to drill more, assuming you have the quality and met your economic threshold,” Mallon said. “But I don’t think we’re going to see anybody in the drill, baby, drill mode. I really don’t.”
The US is pumping more than 13 million barrels of crude a day, exceeding every other nation and up almost 45% in the past decade. With a surplus looming next year, the global oil market is watching to see at what rate American explorers drill new wells. Many of the biggest US operators are taking a long-term approach to production, weighing when to bring certain wells online against their overall inventory.
Mallon’s comments mark the second time since the election that the largest US oil company has diverged from Trump’s policies. Chief Executive Officer Darren Woods discouraged the president-elect from withdrawing the US from the Paris climate pact, arguing that it’s better to participate and push for “common sense” carbon-cutting policy.
Mallon reinforced Woods’s recent remarks supporting the US Inflation Reduction Act, which Trump has characterized as Washington’s “green new scam.” Some IRA incentives — including tax credits for capturing carbon, producing hydrogen and making sustainable aviation fuel — are particularly popular with oil companies.
“Our position on the IRA is very good,” Mallon said. “We strongly believe in what it is, what it stands for and the incentives it’s providing.”
©2024 Bloomberg L.P.
Oil Glut Set to Thwart Trump’s Call to ‘Frack, Frack, Frack’
By Lucia Kassai, Kevin Crowley, and David Wethe
November 19, 2024
(Bloomberg) -- President-elect Donald Trump’s vows to “frack, frack, frack” are about to collide with a global crude glut that’s set to, finally, temper record shale production.
Trump has said he’ll push America’s shale companies to ramp up output – telling supporters pump prices would fall even if it meant producers “drill themselves out of business” — but his second term follows two straight years of record US output. Against that backdrop, analysts and traders surveyed by Bloomberg see the US adding just 251,000 barrels a day from the end of this year through 2025, the slowest pace since the pandemic-driven drop in 2020.
There are few levers Trump can pull to change that. Opening new federal lands to exploration would take time, and some of his other proposals – such as a trade war with China – are widely seen as bearish for oil because they would erode demand for the commodity.
“There’s a delay between freeing up federal lands, offering it for auction, having companies bid on it, doing exploration, discovering oil and putting the infrastructure for it,” said Ed Morse, a senior adviser at commodities trading firm Hartree Partners LP. The bulk of any production increases stemming from Trump policies would come after his term, Morse said.
So far, the independent oil producers responsible for most of the shale boom over the past decade have no plans to radically alter their drilling after the election. Diamondback Energy Inc. and Devon Energy Corp. indicated growth of 2% or less in 2025, while EOG Resources Inc. and Occidental Petroleum Corp. expect to keep activity flat. Occidental CEO Vicki Hollub has warned of “declining growth rates” in the US over the medium term.
There is cause for skepticism, of course. Last year, the shale patch surprised the market by adding 1 million barrels a day of output, despite independent producers vowing limited growth. And heavyweight producers including Exxon Mobil Corp., Chevron Corp. and ConocoPhillips are expanding rapidly, posting increases of more than 8% in the past year.
Macquarie Group Ltd., which correctly predicted last year’s stunning growth, sees output reaching an unprecedented 13.9 million barrels a day by the end of this year, 5% above current Department of Energy estimates.
That growth, combined with new barrels from Guyana, Brazil and Canada, have set the stage for a massive crude glut in 2025, with the International Energy Agency warning of a 1 million barrel-a-day global supply surplus. Macquarie sees supply outpacing demand by 2.4 million barrels a day in the first quarter, when Trump will be sworn in. And traders are already pricing in a surplus, with West Texas Intermediate retreating by more than 3% this year.
READ: World Oil Market Faces Million-Barrel Glut in 2025, IEA Says
It’s a much different landscape than when Trump first took the White House. In 2017, new investment from private equity and the supermajors was flowing into the oil patch — prompting producers to grow as fast as possible and burning $300 billion of cash in the process.
The pandemic tanked prices, caused labor shortages in the shale patch, stranded imports of equipment in ports and prompted banks to dial back lending to the sector. Dozens of bankruptcies followed. But those that survived were forced to lower costs and become more efficient, positioning them to begin growing again when oil prices rallied in late 2020.
READ: Most Productive US Industry Is One That Wall Street Wrote Off
Under Biden, the US solidified its position as the world’s top oil producer, now pumping 50% more barrels each day than Saudi Arabia.
That pace will be hard to maintain. A $290 billion wave of mergers and acquisitions in the past two years means many of the independent producers that were driving production growth during Trump’s first time in office were bought or merged into larger entities that reined in capital spending and boosted shareholder returns.
Among the deals, Pioneer Natural Resources Co. was bought by Exxon, Endeavor Energy Resources LP was taken out by Diamondback, and CrownRock LP was acquired by Occidental.
Ultimately, though, oil prices could be the biggest obstacle to US growth, according Raoul LeBlanc, vice president for North American unconventionals at S&P Global Commodity Insights.
“At $70, shale independents can both grow and generate free cash flow,” he said. “But at $60 they have to make a choice — and we believe they’ll choose cash for the shareholders.”
©2024 Bloomberg L.P.
(Bloomberg) -- President-elect Donald Trump’s vows to “frack, frack, frack” are about to collide with a global crude glut that’s set to, finally, temper record shale production.
Trump has said he’ll push America’s shale companies to ramp up output – telling supporters pump prices would fall even if it meant producers “drill themselves out of business” — but his second term follows two straight years of record US output. Against that backdrop, analysts and traders surveyed by Bloomberg see the US adding just 251,000 barrels a day from the end of this year through 2025, the slowest pace since the pandemic-driven drop in 2020.
There are few levers Trump can pull to change that. Opening new federal lands to exploration would take time, and some of his other proposals – such as a trade war with China – are widely seen as bearish for oil because they would erode demand for the commodity.
“There’s a delay between freeing up federal lands, offering it for auction, having companies bid on it, doing exploration, discovering oil and putting the infrastructure for it,” said Ed Morse, a senior adviser at commodities trading firm Hartree Partners LP. The bulk of any production increases stemming from Trump policies would come after his term, Morse said.
So far, the independent oil producers responsible for most of the shale boom over the past decade have no plans to radically alter their drilling after the election. Diamondback Energy Inc. and Devon Energy Corp. indicated growth of 2% or less in 2025, while EOG Resources Inc. and Occidental Petroleum Corp. expect to keep activity flat. Occidental CEO Vicki Hollub has warned of “declining growth rates” in the US over the medium term.
There is cause for skepticism, of course. Last year, the shale patch surprised the market by adding 1 million barrels a day of output, despite independent producers vowing limited growth. And heavyweight producers including Exxon Mobil Corp., Chevron Corp. and ConocoPhillips are expanding rapidly, posting increases of more than 8% in the past year.
Macquarie Group Ltd., which correctly predicted last year’s stunning growth, sees output reaching an unprecedented 13.9 million barrels a day by the end of this year, 5% above current Department of Energy estimates.
That growth, combined with new barrels from Guyana, Brazil and Canada, have set the stage for a massive crude glut in 2025, with the International Energy Agency warning of a 1 million barrel-a-day global supply surplus. Macquarie sees supply outpacing demand by 2.4 million barrels a day in the first quarter, when Trump will be sworn in. And traders are already pricing in a surplus, with West Texas Intermediate retreating by more than 3% this year.
READ: World Oil Market Faces Million-Barrel Glut in 2025, IEA Says
It’s a much different landscape than when Trump first took the White House. In 2017, new investment from private equity and the supermajors was flowing into the oil patch — prompting producers to grow as fast as possible and burning $300 billion of cash in the process.
The pandemic tanked prices, caused labor shortages in the shale patch, stranded imports of equipment in ports and prompted banks to dial back lending to the sector. Dozens of bankruptcies followed. But those that survived were forced to lower costs and become more efficient, positioning them to begin growing again when oil prices rallied in late 2020.
READ: Most Productive US Industry Is One That Wall Street Wrote Off
Under Biden, the US solidified its position as the world’s top oil producer, now pumping 50% more barrels each day than Saudi Arabia.
That pace will be hard to maintain. A $290 billion wave of mergers and acquisitions in the past two years means many of the independent producers that were driving production growth during Trump’s first time in office were bought or merged into larger entities that reined in capital spending and boosted shareholder returns.
Among the deals, Pioneer Natural Resources Co. was bought by Exxon, Endeavor Energy Resources LP was taken out by Diamondback, and CrownRock LP was acquired by Occidental.
Ultimately, though, oil prices could be the biggest obstacle to US growth, according Raoul LeBlanc, vice president for North American unconventionals at S&P Global Commodity Insights.
“At $70, shale independents can both grow and generate free cash flow,” he said. “But at $60 they have to make a choice — and we believe they’ll choose cash for the shareholders.”
©2024 Bloomberg L.P.
Oil markets facing ‘profound sentiment challenge,’ Eric Nuttall says
November 20, 2024
Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, says oil prices are climbing as the markets weigh geopolitical risks.
Energy investor Eric Nuttall says global oil markets continue to struggle with a sentiment problem that’s keeping benchmark crude prices lower than they should be.
Nuttall, a partner and senior portfolio manager at Ninepoint Partners, told BNN Bloomberg in a Wednesday interview that the issue mainly revolves around concerns about 2025 inventory levels, which many expect to rise on the back of new builds from oil producers.
But he said that based on current inventory levels, oil is mispriced.
“What we’ve seen is a complete breakdown between historical relationships, meaning if you look at where global oil inventories sit today, they’re at their lowest levels on record,” Nuttall said.
“If you look at where the price should be relative to where inventories are, we’re mispriced by about $12 to $13, so that is reflective of a profound sentiment challenge.”
He added that he believes the general consensus around global demand growth for oil next year is too bearish – another factor putting downward pressure on prices.
West Texas Intermediate crude prices were hovering below US$70 a barrel in midday trading on Wednesday – little changed from Tuesday, as traders weighed escalations in Russia’s war in Ukraine against U.S. stockpile data showing inventories increased last week, Bloomberg reported.
Nuttall said he expects prices to rise and trade within a $70 to $80 bend next year as demand grows in China and other markets.
“We’ve seen major oil traders just in recent weeks point to improvements in China… we see refining margins increasing so that’s reflective of improvement in user demand, and really our thesis on U.S. shale is that we’ve entered its twilight,” he said.
“We think growth next year will be much more modest than consensus, and its not just us thinking that, it’s actually the producers saying that… and so, we think the market is simply far too bearish.”
Trump’s impact
Nuttall said that U.S. president-elect Donald Trump’s “drill baby, drill” approach to energy production is “completely toothless,” and unlikely to meaningfully impact oil and gas prices.
“There’s nothing a U.S. president can do to influence meaningful shale growth when investors don’t want it and the rocks won’t allow it,” he said.
Nuttall did, however, praise Trump’s pick for energy secretary: oil and gas executive Chris Wright.
“As a Canadian I’m very envious… they now have a gentleman that is actually energy literate, who recognizes that there is no energy transition going on, and that depriving the majority of the planet from hydrocarbons keeps them in mass levels of poverty and energy scarcity,” he said.
Wright, the CEO of Colorado-based Liberty Energy Inc., is a vocal proponent of fossil fuels who has said they are crucial for lifting people out of poverty across the world, and that the threat of global warming from their continued production is exaggerated, Bloomberg reported Saturday.
Nuttall said that one way Trump’s administration could influence oil markets next year is by being more hawkish on Iranian oil exports – something he said the current U.S. administration has not made a priority.
“We think that enforcing their sanctions, that have been in place but (the Joe Biden administration) has just been completely turning a willful blind eye, could see about a million barrels per day removed from the market,” he said.
“So that’s yet another bullish possibility that a market which is just so stuck in the mud of negativity is just unwilling to give any potential for.”
With files from Bloomberg News
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