Even though weekend attacks on Saudi oil facilities cut that country’s output in half, American petroleum producers appear neither ready nor willing to fill the void and capture new market share for themselves.
The so-called fracking boom — in which new technologies unlocked tremendous oil and gas deposits in shale formations — has more than doubled US output to almost 12 million barrels per day over the last decade.
The United States is now the world’s largest producer and regularly exports more than three million barrels per day as well.
Why not jump at the chance to make up for the sudden shortfall while Saudi Arabia recovers from the attack, which knocked an estimated five percent of global capacity offline?
Not so fast, producers and analysts say.
Holding on to spare capacity for just such an occasion “implies having existing oil fields that are being willfully kept offline until their production is needed by the market,” Jesse Mercer of the energy intelligence firm Enverus wrote in a blog post.
“That is simply not how US tight oil production works.”
This is also not something US officials can simply dictate.
“US production comes from hundreds of thousands of individual wells controlled by hundreds of privately owned and publicly traded companies,” said Mercer.
Ramping up output would mean spending more on rigs, crews and infrastructure, he said.
“None of this can be done overnight.”
Mike Wirth, head of the US supermajor Chevron, drove the point home in an interview with CNBC.
“You can’t just flip a switch and see more oil coming into the market,” he said. “There is months of leap time in setting up new rigs.”
While it was early to assess the market implications of the attack on Saudi facilities, “the fundamental backdrop has not changed,” he said.
A ‘short-term event’
Indeed, the disruption to Saudi output is mere blip on the radar, said Harold Hamm of the Oklahoma oil producer Continental Resources.
“We want to meet demand. That is for sure,” he also told CNBC. But “short term bites and or shortages” will not change a company’s budgeting for the year.
“We are going to stay where we are for the time being.”
R.T. Dukes of the research consultancy Wood Mackenzie told AFP the outlook for demand was already dimming, with market participants fearing a week economy could create oversupply next year.
“That is not removed in a short-term event,” he said. A rapid increase in investment “would take sustained and much higher oil prices than where we are today.”
Smaller producers are also reticent as for several months their creditors have been pushing them to cut spending and raise revenues.
And, though it has slowed, US crude oil production is still growing. It is forecast to reach 13 million barrels per day in the first quarter of next year, up from an estimated 11.8 million barrels per day this year, official figures show.
With new pipelines now operational, the country has partly removed one of the main obstacles to greater production: the lack of infrastructure to deliver crude from the Permian Basin, an oil rich region covering parts of Texas and New Mexico, to the Gulf of Mexico.
Still, according to Mercer, export capacity at US terminals in the gulf is for now capped at 4.5 million barrels per day.
He also says US shale oil and Saudi petroleum are not of the same chemical composition.
While in the short-term producers do not expect to bump up capital spending, they will still enjoy higher prices, which shot up nearly 15 percent on Monday before paring some of these gains on Tuesday.
For the moment, higher prices should help fatten margins and help hedge against future price drops.