Energy

Be Very Afraid OPEC: US Oil Comes Roaring Back As Prices Rise

(Shutterstock/James BO Insogna)

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Andrew Follett Energy and Science Reporter

American energy companies are already reactivating oil rigs after OPEC agreed to cut oil production, sending prices skyward.

Chevron reactivated seven new rigs in West Texas, adding to the 477 U.S. oil rigs currently in operation. The company plans to spend $1.5 billion annually searching for and drilling new oil in Texas and expects to increase investments there as prices continue to rise.

Continental Resources is reactivating two new rigs in South Texas, and other shale oil producers, including EOG Resources Inc., Devon Energy Corp., and Whiting Petroleum Corp. Shale oil stock prices are soaring, leaving petrol companies flush with cash to invest in ramping up production.

“The shale producers will be the ones who benefit from the oil-producer deal and the likely rise in oil prices,” Charles Perry, CEO of energy-consulting firm Perry Management, told MarketWatch.

“Shale drillers have good backlogs of undrilled but proven leases, and they can get rigs and other equipment quickly. So even if OPEC cuts production for a limited period of time, the shale drillers can quickly jump in and drill some new wells,” Perry said.

OPEC began been flooding the global marketplace with oil in 2014 in an attempt to depress prices and counter new competition, largely from hydraulic fracturing, causing oil prices to fall from $105 per barrel in June, 2014, to only $29.04 per barrel in January, 2016.

After OPEC announced production cuts last Wednesday morning, the price of oil rose to around $52.04 per barrel.

OPEC’s strategy wasn’t able to kill fracking, and only forced the process to become less costly and more efficient. U.S. oil production levels remained relatively constant despite low oil prices and declining investment. Companies, such as ExxonMobil and Royal Dutch Shell, were already investing $20 billion into fracking technology in August.

Even though the total number of American oil rigs dropped from a high of 1,309 in October 2014 to only 475 in December, 2015, the industry’s increasing efficiency largely made up for the decline. The declining number of rigs caused only an eight percent drop in production, according to a report by the Energy Information Administration (EIA) in February.

The majority of new oil and natural gas drilling in the U.S. is happening in Texas, which now has as many active oil rigs as the rest of the country combined.

OPEC slashed oil production to raise the price because the longer prices stayed extremely low, the worse it would be for major foreign oil producers like Russia, Venezuela and Saudi Arabia. These countries require the price of oil to be above $80 a barrel to balance their national budgets. Industry experts believe that most new American fracking will be profitable at around $40 a barrel. Such a setup means that the price of oil will be permanently locked in at prices favorable to American fracking.

America surpassed Russia’s production last year and is now the world’s largest and fastest-growing producer of oil and natural gas. Oil production in 2015 was 80 percent higher than it was in 2008 due to ever-increasing efficiency, allowing America to produce an average of 9.3 million barrels of crude oil per day last June.

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