OPEC’s Back In The Driver’s Seat

OPEC is “back in the driver’s seat” as the world’s most powerful swing producer, Hess Corp CEO John Hess said on Thursday at a Miami conference.

According to Hess, U.S. crude oil production will average 13 million bpd over the next few years, where it will plateau, as investors pressure U.S. oil companies to focus on returning money to shareholders instead of investing in aggressive growth strategies.

It’s what we’ve been hearing for most of the year; U.S. oil companies are skittish about spending what has been a significant influx of cash this year on ramping up production—not only in an uncertain regulatory environment but in an environment where shareholders continue to demand prudence—and cash—not more investments, which was tolerated in years gone by.

U.S. crude oil production averaged 11.975 million bpd in August this year–the latest data available from the Energy Information Administration. This is up from 11.277 million bpd last August but down from 2019, before the pandemic had cut deeply into crude production.

While U.S. production has ticked up from the 10.457 million bpd in October 2020—one of the lowest points for the U.S. oil industry in years—it is still well below the 13.0 million bpd peak in November 2019. But even more importantly, this year’s failure of the U.S. oil industry to ramp up production in response to dwindling domestic inventories has been a testament to its ability to ramp up at all—stripping it of its swing producer title.

In its absence, OPEC has assumed this role by default. “Shale was thought of as a swing producer, the Saudis and the OPEC have waited this out. Now, really OPEC is back in the driver’s seat where they are the swing producer,” Hess said, pointing out that OPEC lacks some spare capacity to boost production easily.

“We are in the resource business and if you are going to grow future cash flow, you have to grow your resource,” Hess said.

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