Due to falling oil and gas prices in the US, companies no longer have any incentive to increase their production.
Instead, according to a Reuters analysis, companies are beginning to focus on improving the efficiency of their drilling operations.
Oil companies recorded the smallest increase in production since the first wave of the Covid pandemic in 2020, Reuters reported. Total crude and condensates production in the Lower 48 states, excluding the Gulf of Mexico, averaged 11 million barrels per day (mbbl/d) in May, an increase of 400,000 barrels per day compared to May 2023.
Drilling and production activities adjust to price changes, but with a lag of several months. Drilling activity reportedly takes four to five months to respond to price changes, while production takes an additional seven to eight months.
The current slowdown in oil production and drilling is a reflection of the falling oil price since its peak in 2022 and 2023, the report said.
After adjusting for inflation, U.S. crude oil futures prices fell to an average of $74 a barrel, after reaching $84 in August 2023 and $124 in June 2022.
In the US, gas prices, drilling activity and production volumes were affected. This decline also prompted Saudi Arabia and other OPEC+ countries to increase their gas production in order to regain market share.
The increase in production in OPEC member countries has led to an even sharper decline in US gas prices.
However, as U.S. gas exports slow, supply volumes are expected to return to normal in 2024 and 2025. According to the U.S. Energy Information Administration, U.S. dry natural gas production in May 2024 was 3,141,650 cubic feet, up from 3,045,918 cubic feet in April.
Given the volatility of the market, a gradual recovery in oil and gas prices in the US is expected.
“Report: Low prices lead to halt in US oil and gas production” was originally created and published by Offshore Technology, a GlobalData brand.
Source: GlobalData
