Released August 02, 2022 | SUGAR LAND
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August 2, 2022--Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Oil priced at about $100 was enough for most of the U.S. oil majors to post big gains in production, a change in tone from the depths of the pandemic.
As the global economy started to recover from a pandemic that at one point pulled the price of crude oil into negative territory, the energy market was facing profound changes. Commodity prices were on the rise as demand soared on the back of a global population itching to break what seemed like years in lockdown.
But at the same time, those lockdowns opened a window of opportunity for a sea change in the energy sector. French supermajor Total SE became TotalEnergies SE (NYSE:TTE) (Courbevoie, France) to reflect its commitment to the energy transition, and companies were listening to shareholders concerned about the lack of returning capital.
And then Russian military forces crossed into Ukraine in late February, adding a significant geopolitical risk premium to the price of oil. That premium is a reflection of Russia's role in the global energy sector. It's one of the largest crude oil and natural gas producers in the world, and its vast network of pipelines means most of Europe is inextricably linked to what is slowly emerging as a global enemy. Oil, not renewables, is needed now to fill the Russian void.
The invasion also changed the situation in the U.S., also among the world leaders in crude oil and natural gas production. U.S. supermajors Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) and Chevron Corporation (NYSE:CVX) (San Ramon, California) boasted of exceptionally high returns and both said their output from the Permian Basin was accelerating.
"Key to our success is continued investment in our advantaged portfolio, including Guyana, the Permian, global LNG and in our high-value performance products, along with efforts to reduce structural costs and improve efficiency," said Darren Woods, the chief executive officer of ExxonMobil, in a quarterly earnings-related press release.
To be fair, most of the bigger energy companies like ExxonMobil are still investing capital on the so-called energy transition. But for ExxonMobil, at least, most of that effort was outside the United States. Chevron, meanwhile, said its Permian production increased by 15% from year-ago levels, just as the world market cries out for more oil.
The U.S. Department of Energy anticipates production from the Permian Basin will average about 5.4 million barrels per day in August. That represents about 45% of total U.S. crude oil production and, if the Permian were a sovereign member of OPEC, it would rank just above Iraq in terms of production to take second place behind Saudi Arabia.
That emphasis on the Permian is in stark contrast to the mood during the worst of the pandemic, when capital constraints were a top concern. Even OPEC has said that at least some of the supply-side problems gripping the market are because of the lack of focus on new production.
The higher-for-longer outlook for crude oil prices may be changing that. Oilfield services firm Baker Hughes Company (NYSE:BKR) (Houston, Texas) last week recorded 351 active rigs working in the Permian. That's nearly double what it was last year, when the price for West Texas Intermediate was struggling to hold $70 per barrel. It was about $94 per barrel on Monday and exceeded $120 earlier this year.
"The average sales price for crude oil and natural gas liquids in second-quarter 2022 was $102 per barrel, up from $62 a year earlier," Chevron stated.
That said, the combined spend from ExxonMobil and Chevron during the second quarter was about half what it was roughly a decade ago. But maybe that speaks more to efficiency and less to the efforts to control spending upstream.
For upstream players, the picture is a bit mixed. Baker Hughes took a hit in the second quarter, though rival Schlumberger Limited (NYSE:SLB) (Houston) turned in a stellar performance. Indeed, costs are higher, but the outlook is improving from a production and investment standpoint.
The market's focus this week will be on what happens production-wise from OPEC, but there seems to be enough support from outside the cartel to help address at least some of the shortfalls on supply. And indeed, it's the U.S. supermajors like ExxonMobil and Chevron that will do the heavy lifting. That is, it seems, so long as the price of oil remains high to support current trends.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
As the global economy started to recover from a pandemic that at one point pulled the price of crude oil into negative territory, the energy market was facing profound changes. Commodity prices were on the rise as demand soared on the back of a global population itching to break what seemed like years in lockdown.
But at the same time, those lockdowns opened a window of opportunity for a sea change in the energy sector. French supermajor Total SE became TotalEnergies SE (NYSE:TTE) (Courbevoie, France) to reflect its commitment to the energy transition, and companies were listening to shareholders concerned about the lack of returning capital.
And then Russian military forces crossed into Ukraine in late February, adding a significant geopolitical risk premium to the price of oil. That premium is a reflection of Russia's role in the global energy sector. It's one of the largest crude oil and natural gas producers in the world, and its vast network of pipelines means most of Europe is inextricably linked to what is slowly emerging as a global enemy. Oil, not renewables, is needed now to fill the Russian void.
The invasion also changed the situation in the U.S., also among the world leaders in crude oil and natural gas production. U.S. supermajors Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) and Chevron Corporation (NYSE:CVX) (San Ramon, California) boasted of exceptionally high returns and both said their output from the Permian Basin was accelerating.
"Key to our success is continued investment in our advantaged portfolio, including Guyana, the Permian, global LNG and in our high-value performance products, along with efforts to reduce structural costs and improve efficiency," said Darren Woods, the chief executive officer of ExxonMobil, in a quarterly earnings-related press release.
To be fair, most of the bigger energy companies like ExxonMobil are still investing capital on the so-called energy transition. But for ExxonMobil, at least, most of that effort was outside the United States. Chevron, meanwhile, said its Permian production increased by 15% from year-ago levels, just as the world market cries out for more oil.
The U.S. Department of Energy anticipates production from the Permian Basin will average about 5.4 million barrels per day in August. That represents about 45% of total U.S. crude oil production and, if the Permian were a sovereign member of OPEC, it would rank just above Iraq in terms of production to take second place behind Saudi Arabia.
That emphasis on the Permian is in stark contrast to the mood during the worst of the pandemic, when capital constraints were a top concern. Even OPEC has said that at least some of the supply-side problems gripping the market are because of the lack of focus on new production.
The higher-for-longer outlook for crude oil prices may be changing that. Oilfield services firm Baker Hughes Company (NYSE:BKR) (Houston, Texas) last week recorded 351 active rigs working in the Permian. That's nearly double what it was last year, when the price for West Texas Intermediate was struggling to hold $70 per barrel. It was about $94 per barrel on Monday and exceeded $120 earlier this year.
"The average sales price for crude oil and natural gas liquids in second-quarter 2022 was $102 per barrel, up from $62 a year earlier," Chevron stated.
That said, the combined spend from ExxonMobil and Chevron during the second quarter was about half what it was roughly a decade ago. But maybe that speaks more to efficiency and less to the efforts to control spending upstream.
For upstream players, the picture is a bit mixed. Baker Hughes took a hit in the second quarter, though rival Schlumberger Limited (NYSE:SLB) (Houston) turned in a stellar performance. Indeed, costs are higher, but the outlook is improving from a production and investment standpoint.
The market's focus this week will be on what happens production-wise from OPEC, but there seems to be enough support from outside the cartel to help address at least some of the shortfalls on supply. And indeed, it's the U.S. supermajors like ExxonMobil and Chevron that will do the heavy lifting. That is, it seems, so long as the price of oil remains high to support current trends.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
