FT: Oil market caught by surprise as US output surges

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A heavy weight is leaning on global oil markets as prices slide to five-month lows: record US supply.

American crude oil production reached a fresh all-time high of 13.2mn barrels a day in September, according to figures released last week, more than any other country and accounting for about one in eight barrels of global output.

The added volumes have outpaced official forecasts and called into question claims of a US oil industry constricted by Wall Street or environmental regulations. They are causing difficulties for the Opec+ oil cartel, which last week agreed to deepen cuts to its members’ own volumes in a bid to prop up faltering prices.

The new supplies are also creating discomfort for the Biden administration, as US officials join a push to phase out fossil fuels at the UN climate talks in Dubai.

West Texas Intermediate crude on Wednesday fell below $70 a barrel for the first time since July, a move analysts said was driven in part by higher-than-expected production from US shale fields.

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It is a stark contrast with three years ago, when the Covid-19 pandemic caused oil prices to plunge and drilling companies idled rigs and laid off workers. In the aftermath, Wall Street’s insistence on financial returns over growth, fears about the availability of prime acreage worth drilling and President Joe Biden’s combative stance towards the sector stoked fears that the industry’s best days were behind it.

The US accounts for 80 per cent of the expansion in global oil supply this year, according to the International Energy Agency.

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Shale remains “relatively early in its life” in terms of the technological advances that could drive higher productivity, said Eimear Bonner, chief technology officer at Chevron.

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The rebound in oil and gas production has led to accusations of hypocrisy as the Biden administration urges countries to shift away from fossil fuels at the COP28 climate summit in Dubai. Biden, who entered the White House on a promise to “transition from oil”, has since urged greater levels of drilling to keep fuel prices under control.

Biden initially sought to freeze new drilling on public lands and has restricted lease sales in the Gulf of Mexico. Despite this, oil production on federal lands and waters has also risen to record levels during his presidency.

“The US presenting itself as a climate champion at COP is largely a facade, considering it is the biggest oil and gas producer in the world,” said Raena Garcia, senior fossil fuels campaigner at Friends of the Earth.

Industry executives lauded a change in tone from the administration, which they say became more pragmatic since the war in Ukraine pushed energy security to the fore.

“I think what we see in the US is the recognition that a balance has to be struck here,” said Darren Woods, Exxon chief executive, who this week attended the UN climate summit for the first time.

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A steeper decline in oil prices could cause US producers to pull back as they have done in earlier slumps, eventually forcing output lower.

“We’ll just have to see how it plays out,” said Harold Hamm, chair of Continental Resources, the biggest private oil producer in the US. “But so far, they have determination and commitment to continue what they’re doing.”

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