Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

Oil Production Faces Ongoing Headwinds

By Ellen R. Wald, Ph.D.CommoditiesSep 29, 2022 05:11AM ET
www.investing.com/analysis/oil-production-faces-ongoing-headwinds-200630440
Oil Production Faces Ongoing Headwinds
By Ellen R. Wald, Ph.D.   |  Sep 29, 2022 05:11AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
CL
-1.78%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NG
0.00%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

The Federal Reserve Bank of Dallas' third quarter energy survey was released yesterday (Sept. 28). It provides an interesting look at oil and gas production in the most productive onshore region in the United States.

The survey revealed that inflation and supply-chain delays continue to play a major role in hampering production and expansion. The cost of doing business increased for the seventh straight quarter. These include operating expenses, exploration and development costs, and input costs for oil services. Firms also reported the time to receive materials and equipment remains well above average. Supply chain issues are improving, but significant delays remain problematic for oil and gas operators.

Despite these headwinds, firms continued to expand their operations, though at a slightly decreased pace from the previous quarter. Oil and natural gas production continued at essentially the same pace as last quarter.

Most of the executives who responded to the survey seemed positive about the price of WTI for the remainder of 2022. The majority expect crude oil to stay within the $80-$100 per barrel range. 85% also expect the oil market to tighten considerably by the end of 2024, particularly given the current environment of under-investment in new oil resources. 79% of executives also expect that financial investors will return to the oil and gas sector after being scared away by the ESG movement and poor returns. It is particularly significant that executives from exploration and production firms believe that the oil market will tighten, and investment will return.

These two elements may seem contradictory, but traders should understand that although high prices will entice investment in oil and gas, new projects will take longer to come online than they previously did in the shale patch. Many easy-to-access shale oil resources are being exhausted and the regulatory environment in the U.S. adds significant time and money to the process. In addition, growing global demand for oil, along with the prolonged period of low investment, means that so much new investment is needed to overcome the deficit. Even when production is growing at a healthy rate, prices will likely remain elevated.

One recurrent theme expressed in the comments section, was the extent to which federal policy is hampering oil and gas production. For example, one executive explained that the Environmental Protection Agency (EPA) is trying to label the entire Permian Basin as “non-compliant” based on “one air sampling station outside Carlsbad, New Mexico.” Another mentioned “weaponizing and undermining of the U.S. Bureau of Land Management leasing and Gulf Coast licensing rounds” as a roadblock for the entire oil and gas industry in the U.S. One oil services company explained that they have usable equipment that is in demand, but it is currently idled because they aren’t able to obtain specific emissions parts mandated by the government to control emissions.

A second recurrent theme was uncertainty, but not just due to regulatory changes. Extreme volatility in commodities prices is making it very difficult for firms to employ strategies like financial hedging to offset risk. The Federal Reserve’s monetary policy is causing a great deal of uncertainty for drillers because if the economy plunges into a recession, demand for oil will fall. Oil services firms are uncertain whether they will be able to access the capital they need to redeploy and upgrade equipment, because they are not getting long-term contracts that make these expenses advisable.

Even though oil production has increased markedly in the U.S., traders should keep abreast of the trends and concerns that businesses in the most productive region of the U.S. are facing. These issues indicate that traders should not assume the current resurgence in production will last. It is likely that it is already slowing down even if we aren’t yet seeing that in the production data.

For more insights from the third quarter energy survey, tune in to the Energy Week podcast on Tuesday, October 4 when my co-host and I will be speaking with Kunal Patel, a Senior Business Economist in the Research Department at the Dallas Fed and an architect of the survey.

Oil Production Faces Ongoing Headwinds
 

Related Articles

Michael Ashton
Oil Be Home for Christmas By Michael Ashton - Nov 24, 2022

As a general rule, don’t trade on pre-holiday thin-liquidity sessions. There can be amazing-seeming opportunities, but price can still get shoved in your face by whoever it...

Oil Production Faces Ongoing Headwinds

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
carlos gustavo merola
carlos gustavo merola Oct 01, 2022 8:44PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Buffet dont belive that !
cqjhm poufc
cqjhm poufc Sep 29, 2022 2:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
How much longer can  the government keep on offloading the strategic reserves to keep inflation at bay? I'd love to see an analysis on this. Thank you for your article!
Jeff Page
Jeff Page Sep 29, 2022 2:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
After the election.
doug str
doug str Sep 29, 2022 2:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Wed November 9th
Robert Cutler
Robert Cutler Sep 29, 2022 10:08AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Seems crude oil price/barrel is headed toward Putin's age
John Berry
John Berry Sep 29, 2022 10:08AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
130?
Jeff Page
Jeff Page Sep 29, 2022 8:27AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Governed by the EPA? ESG locos?
Vir Daurka
Vir Daurka Sep 29, 2022 8:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Recession is coming and Oil demand is for sure to fall, along with oil prices.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email