Why U.S. Oil Companies Aren’t Riding to Europe’s Rescu
American energy production has only inched up because executives fear that oil and gas prices won’t stay high.
Published April 26, 2022Updated April 27, 2022
HOUSTON — Oil and gasoline prices are climbing. Energy company profits are surging. President Biden, who came into office promising to reduce the use of fossil fuels, has effectively joined the “drill, baby, drill” chorus. Europe would love to end its dependence on Russia.
Yet most U.S. oil businesses are not eager to capitalize on this moment by pumping more oil.
Production of oil by U.S. energy companies is essentially flat and unlikely to increase substantially for at least another year or two. If Europe stops buying Russian oil and natural gas as some of its leaders have promised, they won’t be able to replace that energy with fuels from the United States anytime soon.
U.S. oil production is up less than 2 percent, to 11.8 million barrels a day, since December and remains well below the record 13.1 million barrels a day set in March 2020 just before the pandemic paralyzed the global economy. Government forecasters predict that American oil production will average just 12 million barrels a day in 2022, and increase by roughly another million in 2023. That increase would be well short of the nearly four million barrels of oil that Europe imports from Russia every day.
“You had this bombastic, chest-pounding industry touting itself as the reincarnation of the American innovative spirit,” said Jim Krane, an energy expert at Rice University. “And now that they could be leaping into action to pitch in to bring much-needed oil to the world, they are being uncharacteristically cautious.”
The biggest reason oil production isn’t increasing is that U.S. energy companies and Wall Street investors are not sure that prices will stay high long enough for them to make a profit from drilling lots of new wells. Many remember how abruptly and sharply oil prices crashed two years ago, forcing companies to lay off thousands of employees, shut down wells and even seek bankruptcy protection.
Executives at 141 oil companies surveyed by the Federal Reserve Bank of Dallas in mid-March offered several reasons that they weren’t pumping more oil. They said they were short of workers and sand, which is used to fracture shale fields to coax oil out of rock. But the most salient reason — the one offered by 60 percent of respondents — was that investors don’t want companies to produce a lot more oil, fearing that it will hasten the end of high oil prices.
The Dallas Fed survey found that U.S. companies need oil prices to average just $56 a barrel to break even, a little more than half the current price. But some are worried that the price could fall to as little as $50 by the end of the year.