Saudi Arabia’s surprise June 4 announcement of an oil production cut pushed prices up, a bit. But there’s an important counterweight to Saudi Arabia’s heft in the global energy market: US producers.
The rumored death of the American fossil-fuel industry is premature. President Biden talks up green energy, with policies to match. But Biden has also acknowledged the importance of carbon fuel, and softened his rhetoric toward an industry he once likened to an unwelcome dinosaur. US oil and natural gas production, meanwhile, is creeping back toward record levels, while exports are hitting new highs.
The Saudi cuts, due to take effect in July, could pull 1 million barrels a day from the global market, or about 1% of total supply. That might not sound like a lot, but with relatively tight markets, small changes on the margins can affect prices. Oil prices ticked up about a dollar on the news, to about $77 a barrel for Brent crude, the global benchmark.
That’s a much smaller jump than in April, when a surprise cut of 500,000 barrels by Saudi Arabia and other members of the OPEC+ cartel pushed Brent up by $5 a barrel in one day. The global oil market is in constant flux, especially with Russia’s war in Ukraine and sanctions on Russian energy products. But during the last year, one important factor helping stabilize global markets has been rising US production.
Crude production in the United States peaked at 13 million barrels per day at the end of 2019, right before the Covid pandemic. It then plummeted to less than 10 million barrels per day in 2021, as collapsing demand sent prices plunging and the industry lost billions. When Biden became president in 2021, he called for an aggressive transition to renewable energy and the eventual elimination of fossil fuels.
Then oil prices soared and gasoline prices hit $5 per gallon in the middle of 2022. Biden changed his tune. He started pressing American energy firms to generate more oil and gas to bring prices down. Drillers, burned by pandemic-era losses and years of overproduction before that, demurred, saying it was time to prioritize profitability over growth and market share. Plus, it was hard finding workers to man rigs, and inflation raised the costs of components needed to expand.
Yet US production is rising anyway, from 11.7 million barrels of oil per day a year ago to 12.7 million barrels in March, the most recent data point published by the US Energy Information Administration. So current production levels are just 2.3% below the record production of 2019. EIA forecasts US production to stay at those levels through 2024.
A view shows oil pump jacks outside Almetyevsk in the Republic of Tatarstan, Russia June 4, 2023. REUTERS/Alexander Manzyuk
Perhaps more importantly, the United States is exporting more petroleum products than ever. US exports of crude and crude products, such as gasoline and jet fuel, hit the highest levels ever in March. In a June 1 research note, Citi noted that record US petroleum exports are helping cushion world supplies and keep prices in check.
Take that, Saudi Arabia.
US natural gas production is also at record highs, as are exports, in the form of liquified natural gas or LNG. A boost in US LNG exports to Europe over the winter helped forestall an energy crisis as most gas stopped flowing from Russia, which used to be Europe’s biggest supplier.
World energy flows have shifted dramatically since Russia’s invasion of Ukraine in February 2022. Western sanctions on Russian oil and gas have forced it to find customers elsewhere, with new sources backfilling markets Russia vacated. But one thing hasn’t changed: the United States remains the world’s top oil and gas producer and a muscular force in world energy markets.
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Before Covid, a sort of production war broke out between the OPEC+ oil producers and US energy firms using new hyrdrofracking or “fracking” technology to reach vast deposits once out of reach. As US production skyrocketed, the Saudi-led OPEC nations produced more, too, with each side aiming to gain or at least keep market share. Consumers were the biggest winners: From 2014 through 2020, energy prices plunged, culminating in a brief, crazy moment in April 2020 when oil prices briefly went negative.
Since then, US producers have vowed “capital discipline,” returning money to shareholders through dividends or stock buybacks instead of investing it in new capacity. And US firms, nursing Covid-era losses, seemed to yield command of the market to OPEC+ nations with nationalized oil companies controlled by their governments that were able to keep investing without alienating shareholders or investors.
Yet US oil and gas firms boosted investment in 2022 and again so far in 2023, after a sharp falloff from 2019 through 2021. That’s not because Biden asked them to. It’s because they can make good money with oil prices in the range of $70 or higher, and they think prices will stay in that range long enough to justify the investment.
Since US energy firms exist in the private sector, Biden can’t use them as a tool of government, the way Saudi Arabia and most other OPEC+ nations can. But the US energy industry is nonetheless helping counter the Saudi-led effort to keep supplies tight and prices high. Consumers can only hope both sides dig in for another long fight.
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