After a painful two-year price war with OPEC, the worst may finally be over for the American oil industry.
U.S. oil companies didn’t merely survive OPEC’s attempt to drown them in low prices. The energy industry is emerging from this dark period of bankruptcies and job cuts much leaner and ready to thrive, even at prices that were once too low.
OPEC’s decision in November to abandon its strategy of flooding the world with excess supply allowed oil prices to stabilize above $50 a barrel. That bottom in prices has allowed the U.S. shale oil producers that have driven the boom in American oil production over the past decade to once again start pumping more oil. And many have even started to rehire some of the thousands of workers laid off during the downturn.
The U.S. oil comeback has been led by a dramatic resurgence in the Permian Basin, a hotbed of shale drilling in Texas and New Mexico. Frackers are racing to add rigs in the Permian, where the count has skyrocketed from a low of 132 last April to 301 now.
“All evidence is indicating that an oil price over $50 is fanning the flames of higher production,” Matt Smith, director of commodity research at ClipperData, wrote in a recent report.
That’s why the U.S. Energy Information Administration significantly upgraded its 2018 forecast for domestic oil output to 9.5 million barrels per day, compared with 8.9 million barrels as of last November.
JPMorgan is even more bullish on American oil, predicting the U.S. will pump 9.7 million barrels a day by the end of next year.
That would be quite the feat, eclipsing the 44-year high set during the recent peak in April 2015. That kind of output would also be just shy of the all-time high, set in November 1970 just before the OPEC oil embargo.
All that new American oil could keep a lid on prices, which have already doubled from the lows of last year. Strong U.S. production would also make life more difficult for OPEC, especially because the cartel’s well-executed production cut agreement is set to expire later this year.
The key to the U.S. resiliency is that financial pressure has forced once-bloated drillers to become vastly more efficient.
“The crisis of collapsing oil prices has seemingly focused the industry on doing more with less,” JPMorgan global commodity research analyst David Martin wrote in a report.
Thanks to more sophisticated technology and lower prices for personnel and drilling equipment, shale drillers are much leaner these days.
Societe Generale called it a “profound technological transformation” that signals shale is “coming back, and coming back strong.”
In fact, SocGen said each drilling rig is now able to pump more oil “than ever before.” Capital Economics estimates that the U.S. can replicate the powerful output of 2015 with half the rigs.
Talk of an oil comeback is terrific news for laid-off oil workers in Texas, North Dakota and elsewhere. Goldman Sachs has estimated that nearly 170,000 oil and gas jobs were wiped out between late 2014 and mid-2016 as companies big and small scrambled to slash costs and stave off bankruptcy.
Thankfully, the pink slips have finally stopped flying in the oil patch. Government statistics show that the energy industry’s labor force stopped shrinking during the second half of last year.
“Finally, we are seeing an uptick. The layoffs stopped about six months ago,” Jeff Bush, president of oil and gas recruiting firm CSI Recruiting, told CNNMoney.
Bush cited a flurry of hiring, especially for six-figure jobs in geology, engineering, finance and accounting. The field work is also coming back, albeit more modestly.
He said the oil crash was “harsh” because of the dramatic decline in drilling activity.
“We’re recovering, but it has not recovered yet,” Bush said.
It stands to reason that hiring may not be quite as robust this time because shale companies can do more with less.
That may be true, but in order to ramp production back up the industry will need to hire a lot. Oil companies need to replace the workers who were laid off during the downturn, some of whom have found work in other industries like construction. Goldman Sachs has predicted the oil and gas industry may need to add 80,000 to 100,000 jobs by the end of 2018.
And that doesn’t factor in promises by President Trump to rip up regulations that he says are holding the American oil industry back.
“When things come back online, there’s going to be an enormous talent shortage of epic proportions,” Bush said. “It’s going to be nuts.”