HOUSTON – Even with rising oil and gas prices, industry executives are resisting the usual urge to extract more oil from the ground, which can keep energy prices rising as the economy recovers.
The oil industry is predictably cyclical: when oil prices rise, producers rush to drill – until the world is swimming in oil and prices fall. Then, the energy companies that tried too hard will go bankrupt.
This wash-rinse-repeat cycle has occurred repeatedly in the past century, three times in just the past 14 years. But, at least for now, oil and gas companies are not following the old directions of the internship.
The accelerated launch of vaccines in the United States is expected to boost the American economy this spring and summer, encouraging people to travel, shop and get around. In addition, President Biden’s pandemic relief package will put more money in the pockets of consumers, especially those who are still unemployed.
Even before Congress passed this legislation, oil and gas prices were recovering after the collapse in demand and fuel prices last year. Gasoline prices have risen by about 35 cents a gallon on average over the past month, according to the AAA motor club, and could reach $ 4 a gallon in some states in the summer. While overall inflation remains subdued, some economists are concerned that prices, especially for fuels, may rise faster this year than in the long run. This would do more harm to working-class families because they tend to drive older, less efficient vehicles and spend more of their income on fuel.
In recent weeks, oil prices have risen to more than $ 65 a barrel, a level that would have seemed impossible just a year ago, when some traders were forced to pay buyers to get the oil out of their hands. Oil prices fell more than $ 50 a barrel in a single day last April, to less than zero.
That bizarre day seems to have been engraved in the memory of oil executives. The industry was forced to paralyze hundreds of platforms and close many wells, some forever. About 120,000 American oil and gas workers have lost their jobs in the past year and companies are expected to lay off 10,000 workers this year, according to Rystad Energy, a consulting firm.
However, even though they are making more money thanks to higher prices, industry executives promised at a recent energy conference that they would not expand production significantly. They also promised to pay debts and distribute more profits to shareholders in the form of dividends.
“I think the worst thing that can happen now is for American producers to grow back quickly,” said Ryan Lance, president and chief executive of ConocoPhillips, at the IHS Markit CERAweek conference, a virtual annual meeting this year.
Scott Sheffield, chief executive of Pioneer Natural Resources, a major Texas producer, predicted that American production would remain stable at 11 million barrels a day this year, compared with 12.8 million barrels immediately before the pandemic.
Even the Organization of Petroleum Exporting Countries and allied producers like Russia surprised many analysts this month, keeping several million barrels of oil out of the market. OPEC’s 13 members and nine partners are pumping about 780,000 barrels of oil per day less than at the beginning of the year, although prices have risen by 30% in recent months.
“The discipline to support higher prices is necessary for the recovery of their economies,” said René Ortiz, a former OPEC secretary general who is now Ecuador’s energy minister, adding that many of the group’s members needed higher prices. oil to balance their budgets and service their debts. “Your reserves have been drained.”
The decision to keep production restricted was mainly the work of Saudi Arabia and its closest allies in the Persian Gulf and was a reversal of its position just a few years ago. In late 2014, when oil prices started to fall due to the increase in American oil production, Saudi Arabia and OPEC increased production, causing prices to plummet. The cartel seemed to want to undermine drilling in the US shale fields, especially in Texas and North Dakota.
But the U.S. oil industry was much tougher than Saudi officials expected, and American production continued to grow as companies cut costs. While many shale companies have been hurt by OPEC action and oil prices have never fully recovered, the economies of Saudi Arabia and other oil-dependent nations have been hurt much more than the United States.
But the temptation to produce more when prices rise has not completely disappeared, especially for countries like Colombia and Guyana, who want to pump as much oil as they can before growing concerns about climate change reduce demand for fossil fuels in favor of electric power and hydrogen powered vehicles. Russia has been pressing Saudi Arabia to loosen production limits, while Kazakhstan, Iraq and several other countries are exporting more. Even Iran and Venezuela, which are struggling to sell oil because of U.S. sanctions, are starting to export more.
Some analysts hope that when OPEC and its allies meet again next month, they will allow more production, which could bring prices down.
But for now, oil stocks are decreasing worldwide, as demand for energy begins to recover.
As always, tensions in the Middle East may determine what will happen to oil prices.
In recent weeks, drone attacks on energy facilities in Saudi Arabia have caused chills in the oil markets. Although the Houthi rebels in Yemen claim credit for the operation, the drones may well have been launched by Iran, which is an ally of the rebels, according to Saudi security officials.
“The warming of what is commonly understood as a proxy war between Iran and Saudi Arabia in Yemen is only increasing the price of oil,” said Louise Dickson, an oil market analyst at Rystad Energy.
Iraqi militias believed to be Iran’s allies have also attacked American military forces.
Some tensions in the region could ease if the Biden government and Iranian officials restart negotiations on a new nuclear deal to replace what was negotiated by the Obama administration and abandoned by the Trump administration. Iran would likely export more oil.
Of course, US oil executives have little control over these geopolitical issues and say they are doing what they can to avoid another abrupt reversal.
“We are not betting on higher prices to bail us out,” Michael Wirth, Chevron’s chief executive, told investors on Tuesday.
Chevron said this week that it would spend $ 14 billion to $ 16 billion a year on capital and exploration projects by 2025. That’s several billion dollars less than the company spent in the years before the pandemic, as the company focuses on producing the cheapest barrels.
“So far, these guys are refusing to take the bait,” said Raoul LeBlanc, vice president of IHS Markit, a research and consulting firm. But he added that American executives’ investment decisions could change if oil prices soar. “It is very, very early to say that this discipline will last.”