Where do we go from here?

Now that the OPEC+ cartel has settled its latest internal feud, it’s a good time to assess where the US domestic oil and gas boom stands and where it will continue. Despite the presence of the wildcard presented by mounting concerns about the COVID delta variant on the horizon, a consensus seems to be emerging on the prospect that the boom will last not just until the end of 2021, but for years to come.

That won’t make the climate change demise prophets or peak oil demand theory happy, but the reality on the ground is what it is, and no amount of wishful thinking or false prophecy can change those facts. Skeptics will point to the crude oil price crash on Monday, as Brent and West Texas Intermediate prices fell 7%. But that was a case of classic market overreaction to the resolution of the OPEC+ conflict and the group’s decision to gradually add volumes that it has withheld from the market over the next year.

Traders almost always overreact to major events like these, but Monday’s turnaround has already reversed, with Brent crude trading above $71 again on Wednesday morning and West Texas Intermediate rising 3% since Monday. This reversal is happening as the global balance between supply and demand continues to push prices upwards.

You don’t have to take my word for it – just ask Goldman Sachs. As traders fueled crude oil markets on Monday, Goldman Sachs analysts said they see the resolution of the OPEC+ squabble a modest upside to the summer oil price forecast of $80 a barrel for Brent oil. As indicated by ReutersGoldman Sachs told customers in a note that the OPEC+ deal represents $2 a barrel “upside” from the $80 a barrel Brent price forecast for the summer and a $5 increase from the $75 a barrel forecast for next year. year.

Analysts at Bank of America Global Research also saw the OPEC+ resolution as bullish, raising their projected average Brent price for 2021 from $63 to $68, and their 2022 price projection from $60 to $75. price could briefly push above $100 a barrel next year, adding that a predicted supply response by the U.S. shale industry then would drive prices lower later in the year and into 2023.

However, the outlook for such a supply response from domestic shale producers remains highly uncertain, as corporate producers see much better results due to their current focus on cost reduction, improved cash flows and growth through acquisition and consolidation at the expense of higher drilling budgets. Indeed, the upstream oil and gas sector was one of the best performing investment sectors in 2021, a new reality that limits the need to radically expand new drilling activities.

One indicator of this continued focus on investor returns is the moderate increase in rigs as we move into the second half of the year. In a normal recovery year for the domestic industry, we would expect rig numbers to skyrocket by July and business operators to implement higher revised budgets for the second half of the year. With crude oil prices up 40% since January 1, despite falling on Monday, you should expect dozens of new rigs and frac crews to be back in action.

But this is not a normal recovery, as we’ve documented all year. This is without a doubt the most tentative recovery we’ve seen in American industry in modern times. So we’ve seen a very muted response from the rig so far since July 1 with the Enverus daily rig count with only an increase of about 1 rig per day to July 19, an increase of only 13 in the past 30 days. With OPEC, the US Energy Information Administration and the International Energy Agency all forecasting rapidly increasing global demand through at least the end of 2023, this pace of increased drilling activity illustrates the cautious approach of management teams at upstream corporate producers.

This caution is now seen as an absolute positive in the oilfield services sector as well. In conversation With analysts and investors Tuesday, executives at Halliburton said they expect their company to see several years of continued growth, both domestically and globally. In an interview with Bloomberg TV, Jeff Miller, the company’s CEO, said the economy feels more than 2% locked in, so demand is growing, adding that drillers will need many services to meet global oil and gas demand. .

So what we’re seeing here is that Monday’s precipitous drop in crude prices was far from a sign of an oil and gas apocalypse, but just a temporary burst on the continuum of the most modest and tentative US oil boom in modern times. Unless the Delta variant or some other unforeseen global demand-killing crisis intervenes, there is every reason to expect this boom to continue for many months, possibly years.