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Gas prices are high. Oil CEOs reveal why they’re not drilling more

The American oil industry does not seem to be in a hurry to save the Americans who are struggling with high gas prices. Oil company executives say Wall Street is to blame. 59% of oil executives said investor pressure to maintain capital discipline was the main reason oil producers trading on the stock market were holding back growth, according to a Federal Reserve Bank of Dallas survey released Wednesday. , the booming oil industry spent generously to finance the overall growth of production. US oil production soared, keeping prices low. However, maintaining profits proved elusive. Hundreds of oil companies went bankrupt during multiple oil price spikes, forcing investors to demand more restraint from energy CEOs. “Oil companies are under tremendous pressure from Wall Street to return cash to shareholders through dividends and acquisitions, instead of investing in much-needed supply. in research. “Shareholders and lenders continue to demand return on capital and until it inevitably becomes apparent that high energy prices will be maintained, there will be no exploration costs.” in the coming months, it remains much lower than production before COVID. This is despite the fact that oil prices have skyrocketed to levels not seen since 2008. The United States produced 11.6 million barrels a day in the week ended March 18, according to the US Energy Information Administration. This is reduced by 10% from the end of 2019. Prices, on the other hand, have risen. US crude closed at $ 114.93 a barrel on Wednesday, up 88% from the end of 2019. Current prices are well above the $ 56 a barrel average that oil companies told the Dallas Fed. must make profitable drilling. The largest companies said they needed prices of just $ 49 a barrel to make a profit. However, oil executives and investors are reluctant to add enough supply to cause another price crash. And shareholders want companies to recoup excess profits in the form of dividends and acquisitions, not reinvest them in increased production. The energy sector, made up largely of oil and gas companies, easily had the worst performance in the past decade. end of the day. “said the executive. Only 6% blame government regulation After Russia’s invasion of Ukraine, the price of regular gasoline in the US reached a record high of $ 4.33 a gallon. Although environmental policies are often blamed for high energy costs, oil executives do not seem to see them as a central factor here. Only 6% of executives polled by the Dallas Fed cited government regulations as the main reason that listed oil companies are restricting production growth. Another 11% cited environmental, social and governance (ESG) issues. The ESG movement has led many investors to avoid fossil fuel companies in favor of clean energy companies. About 15% of executives said “other” factors were to blame, including staff shortages and supply chain problems. However, many executives interviewed expressed concern about regulations and industry rhetoric from the federal government as well as individual states such as Colorado. “The message from the White House, the Capitol and Wall Street was that oil “And gas is an industry that is dying and an industry that needs to be abandoned,” said one survey participant. “Regulations significantly hurt and hinder energy production in the US,” said another executive. Dallas jumped to its highest level in its six-year history in the first quarter. will be due to a sharp increase in the oil production index. The bad news is that the big oil companies are just signaling a modest increase in supply. Among the major oil companies, the average production growth rate between the fourth quarter of last year and the first quarter of this year was 6%. Small businesses, many of which are not trading on the stock exchange, expect much faster output growth of 15%. If US oil companies and OPEC fail to boost output, analysts have warned that energy prices are likely to remain staggeringly high. about two million barrels per day in 2023 to balance global supply and demand. until the American consumer is in recession. ”

The American oil industry does not seem to be in a hurry to come to the rescue of Americans struggling with high gas prices. Oil executives say Wall Street is to blame.

Fifty-nine percent of oil executives said investor pressure to maintain capital discipline is the main reason that listed oil producers restricting growthaccording to the Federal Reserve Bank of Dallas overview released on Wednesday.

For years, the bustling oil industry spent lavishly to finance the overall development of production. US oil production soared, keeping prices low. However, maintaining profits proved elusive. Hundreds of oil companies went bankrupt during multiple oil price spikes, forcing investors to demand more restraint from energy CEOs.

Today, oil companies are under enormous pressure from Wall Street to return cash to shareholders through dividends and acquisitions, instead of investing in much-needed commissions.

“Discipline continues to dominate the industry,” said an executive of an oil service company. Dallas Fed in research. “Shareholders and lenders continue to demand return on capital and until it inevitably becomes apparent that high energy prices will be maintained, there will be no exploration costs.”

US production is declining even as prices soar

Although US oil supply is expected to increase in the coming months, it remains much lower than pre-COVID production. And this despite the fact that oil prices have skyrocketed at levels invisible since 2008.

The United States produced 11.6 million barrels a day in the week ended March 18, according to the US Energy Information Administration. This is 10% drop from the end of 2019.

Prices, on the other hand, have risen. US crude closed at $ 114.93 a barrel on Wednesday, up 88% from the end of 2019.

Current prices are well above the $ 56 a barrel average that oil companies have told the Dallas Fed they need to make profitable drilling. The largest companies said they needed prices of just $ 49 a barrel to make a profit.

However, oil executives and investors are reluctant to add enough supply to cause another price crash. And the shareholders want the companies to return the excess profits in the form of dividends and acquisitions, not to reinvest them in the increase of production.

An executive who participated in the survey pointed out the astonishing losses suffered by shareholders in recent years. The energy sector, made up largely of oil and gas companies, was easily the worst player of the last decade.

“Investors have invested heavily in shale drilling only to find that when oil prices fell, there was very little value at the end of the day,” he said.

Only 6% blame government regulation

Following the Russian invasion of Ukraine, the price of regular gasoline in the United States reached a record high of $ 4.33 a gallon.

Although environmental policies are often blamed for high energy costs, oil executives do not seem to see them as the central player here.

Only 6% of executives polled by the Fed in Dallas cited government regulations as the main reason listed oil companies are restricting production growth.

Another 11% cited environmental, social and governance (ESG) issues. The ESG movement has led many investors to avoid fossil fuel companies in favor of clean energy companies.

About 15% of executives said “other” factors were to blame, including staff shortages and supply chain problems.

“Bibliography” of the oil industry

However, many executives involved in the investigation have expressed grave concern about regulations and industry rhetoric from the federal government as well as individual states such as Colorado.

“The message from the White House, the Capitol and Wall Street was that oil and gas is an industry that is dying and must be abandoned,” said one survey participant. This executive pointed out the “serious labor issues” that are due in part to the “walk” of the oil and gas industry.

“The regulations are significantly damaging and hampering energy production in the US,” said another official.

For consumers worried about near-record gasoline prices, the good news is that more is coming.

The business index in the Dallas Fed survey jumped in the first quarter to the highest level in its six-year history. This gain came from the sharp rise in the oil production index.

The bad news is that the big oil companies are just signaling a modest increase in supply.

Among the major oil companies, the average output growth rate between the fourth quarter of last year and the first quarter of this year was 6%. Small businesses, many of which are not listed on the stock exchange, expect a much faster 15% increase in production.

If US oil companies and OPEC fail to boost production, analysts have warned that energy prices are likely to remain painfully high.

An oil executive in the Fed’s Dallas study said the United States needs to increase production by about two million barrels a day in 2023 to balance global supply and demand.

“It seems unlikely that this will happen,” he said, “which will lead to consistently higher energy prices until the American consumer is in recession.”

Gas prices are high. Oil CEOs reveal why they’re not drilling more Source link Gas prices are high. Oil CEOs reveal why they’re not drilling more

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