Is US Oil 'Back' and 'Expanding'?

While President Trump asserts the US oil industry is “back” and “expanding”, some experts say the claims are lofty and false. The comments were made during a speech at a Texas fundraising event hosted by Double Eagle Energy, with the president saying that after overcoming the oil price crash triggered by the COVID-19 pandemic, the US industry has returned with a vengeance and is “going to keep expanding.

Referring to production cut negotiations made between the United States, OPEC and Russia earlier in the year, Trump assured the crowd “we did a great job” and confirmed the industry is now enjoying steady growth.

Experts say comments are buoyant

Not all experts agree with Trump’s buoyant attitude, with some warning the comments about the state of the North American oil and gas sector are dangerous and misleading. While WTI is no longer trading in negative territory, the industry is still plagued by low prices. Currently, prices are still 30% lower than January and domestic production has slumped by 2 million barrels a day. Weak demand is also hindering growth, with oil-hungry industries like the air travel sector not set to recover to pre-pandemic levels for years.

As a result, many smaller companies have been filing for bankruptcy, while larger majors such as Shell and BP have been forced to execute mass layoffs and dividend reductions. Overall, the number of operational oil and gas rigs in the United States has dropped significantly since last year. A recent report issued by oil and gas service company Baker Hughes revealed there are just 251 active drill rigs in the US, a substantial drop from the 942 operational rigs reported at the same time last year. In the Permian Basin, one of the country’s most lucrative oil producing regions, the active rigs count is down by 71%.

Unless prices recover, energy experts like Philip Verleger warn the United States oil and gas industry will remain on its knees. “A lot of companies have started reporting their financials, and they're just horrible," says Verleger. “This industry is going to shrink and going to shrink dramatically unless global prices go up.”

A cautiously optimistic approach

Bill Gilmer, who oversees the Institute for Regional Forecasting at the University of Houston, says that while Trump's claims are embellished, the industry has enjoyed some stabilisation over the past few months. “Things have definitely stabilised, things are beginning to turn around," he says. “To say it's back, yeah, that's an exaggeration for sure," Gilmer said. "To say it's improving rapidly, probably not an exaggeration.”

To find out more about how COVID-19 has impacted the oil and gas industry don’t miss ‘ATEX and IECEx Covid-19 and Brexit.’