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Demand optimism prompts US drillers to pump more oil

Despite a shortage of labour and disruption to supply chains, optimistic sentiment about the continued demand for crude oil are prompting US operators to ramp up production. The rig count reached its highest level since April 2020, which was just after the COVID-19 pandemic triggered lockdowns around the world.

Larger companies like Chevron and ExxonMobil, the oil majors behind Texaco and Mobil lubricant products, had already announced planned production increases at their shale plays, but the wider US shale industry has its challenges to overcome. An industry respondent to the Dallas Fed’s quarterly oil industry survey summarised it as follows:

“The supply-chain issues and shortage of materials are unprecedented. We are also facing serious workforce issues because a meaningful portion of the labour force left the industry during the downturn and due to the vilification of the oil and gas industry.”

Combined with inflationary pressures, this situation led to the US Energy Information Administration (EIA) revising down the country’s projected output from 12.3 million barrels per day (bpd) to 12.1 million bpd.

Some industry analysts have higher projections, however. Even with higher production costs, benchmark US oil prices are currently considerably higher than the typical breakeven price of drillers. Enterprise Products Partners, a pipeline company, is more optimistic than the EIA with a predicted average output of 12.4 million bpd in 2020, while East Daley Capital, an energy consultancy firm, predicts the US will produce 12.86 million bpd on average by the end of this year.

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