Oil: Production Constraints Mean Keeping Up With Demand Remains Difficult
Ellen Wald | Sep 22, 2022 10:55
Concerns are growing over the state of US oil production, particularly as the fate nears for implementation of the US and EU sanctions against Russian oil. Unless the US and EU reverse their policies, sanctions on Russian oil will begin on Dec. 5. As a result, the demand for US oil exports has increased.
Can US production keep up with demand? Here is a look at the current state and some issues impacting production in the near future.
The Energy Information Administration's (EIA) Energy Week podcast, which I co-host, he explained that “we have the resources, the rocks are good. There is no shortage of sweet spot good geology rocks to go drill.” Rather, the primary issues holding back production growth are workforce constraints, supply chain delays, financial issues, and energy policies.
Access to capital markets remains an issue for companies that cannot or do not want to self-fund drilling projects. Drilled but uncompleted wells (DUCs) are starting to accumulate in some regions due to a dearth of drilling crews. Despite vocal support for increased domestic energy production from the White House, there has been no material change in policies that have hampered infrastructure construction and the permitting process. In addition, steel tariffs from the Trump administration remain in place and continue to make it difficult for energy producers to obtain steel.
The takeaway for traders is that the EIA forecast for 2023 is probably overly optimistic given the limitations facing producers in the most productive region of the US. But the issue is not a lack of accessible oil, but rather a litany of constraints on producers that are creating an environment in which growth is harder than ever.
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