Muted increases in U.S. oil production, coupled with cuts by OPEC+ nations, are anticipated to constrain crude supply in the coming months, driving up prices, according to Lloyd Helms, COO of U.S. shale producer EOG Resources. American energy firms have reduced domestic oil and gas drilling activities to their lowest since April 2022, with cutbacks spanning from Texas to Pennsylvania. This decline is expected to continue, as oil and gas prices have not reached the highs seen last year. Helms remarked at a JP Morgan energy conference that the market is poised to tighten further, and expressed optimism regarding the potential upward trajectory of oil prices.
U.S. natural gas prices are also expected to receive support due to a decrease in drilling rigs in shale-gas basins at a time when demand for liquefied natural gas (LNG) is predicted to surge. At the time of the report, global benchmark Brent crude was trading at $77.10, while U.S. natural gas prices were around $2.58 per million British thermal units. Additionally, Saudi Arabia has announced plans to reduce its output by one million barrels per day in July, supplementing OPEC+'s new initiatives to limit supply through 2024 in an effort to stabilize oil prices.
U.S. oil production growth is projected to increase modestly by 1.3% to 12.77 million barrels per day in the following year, after a 6.1% gain in the current year, based on estimates from the U.S. Energy Information Administration. Moreover, output from the prominent shale region, the Permian Basin of Texas and New Mexico, is also in decline. Helms indicated that EOG Resources does not plan to expand its activities in the Permian Basin due to workforce and service limitations.
EOG Resources aims to maintain steady drilling activity in the Permian Basin and shift its focus towards Ohio's Utica and Wyoming's Powder River Basin. This development reflects a broader trend in the energy industry, where supply constraints and strategic cuts by producing nations are affecting the market dynamics, potentially leading to higher crude and natural gas prices in the near term.
