America is going through an oil boom — and this time it's different (2024)

Drilling rigs sit unused on a lot in Odessa, Texas, in the Permian Basin, in March 2022. U.S. oil companies are thriving as they look to avoid the boom-and-bust cycles of the past. That has big implications, including for consumers and global producers. Joe Raedle/Getty Images hide caption

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Joe Raedle/Getty Images

America is going through an oil boom — and this time it's different (2)

Drilling rigs sit unused on a lot in Odessa, Texas, in the Permian Basin, in March 2022. U.S. oil companies are thriving as they look to avoid the boom-and-bust cycles of the past. That has big implications, including for consumers and global producers.

Joe Raedle/Getty Images

MIDLAND, Texas — America's oil industry is booming — in a surprising way.

It doesn't look much like the booms of the past, when companies would scramble to pump as much oil as possible and the region would attract so many workers it became impossible to find housing and free hotel rooms.

Instead, a sector infamous for its booms and busts is finally learning how to embrace the one thing they've never been known for: moderation.

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This shift is doing a lot of good in the Permian, America's most prolific oil basin. Oil companies are raking in profits, and the steadier work has also been good for workers across the region.

But the economic, geopolitical and climate implications are more complicated.

Here are five things to know about this shift, and what it means.

Oil prices are volatile — but still very profitable

Last year, Russia's invasion of Ukraine sent crude prices soaring well past $100 a barrel, and that meant producers were making money hand over fist.

Prices have since fallen, but they remain at or above their pre-pandemic levels. Significantly, they've consistently been high enough for most producers to drill new wells at a profit.

The most recent survey from the Dallas Federal Reserve found that the average Permian producer can break even on a new well when WTI (a key reference price for oil prices) is trading at $61 a barrel. And currently, prices are well above that level.

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The result: Big profits for companies and higher employment and wages for workers in the Permian Basin.

... but something unexpected is happening

Before the pandemic, the U.S. oil industry followed a predictable pattern.

"When there was an increase in prices, the U.S. shale players would rush in and increase production to try to capture that price increase," says Angie Gildea, the head of U.S. energy for global accounting firm KPMG.

In previous boom times, more than 500 drilling rigs were operating simultaneously across the Permian as oil companies chased high oil prices.

All those wells contributed to a huge growth in oil supply, which then led to a huge oversupply, which then inevitably led to ... huge price crashes and a resulting collapse in drilling activity. Boom, bust. Boom, bust.

But last year, despite prices topping $100 a barrel, rig counts stayed in the mid-300s. They held there as prices dropped. And that's where they remain today, more or less leveling off.

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There are multiple factors keeping companies from drilling even more — supply chain shortages, trouble hiring workers, or for some companies, a lack of good sites to drill.

But a huge factor in this shift towards moderation is pressure from investors who want oil companies to share their profits with them, rather than funneling the earnings back into the ground to make more oil.

America is going through an oil boom — and this time it's different (4)

The number of drilling rigs active at one time is a closely watched figure, indicating how active the oil industry is. Camila Domonoske/NPR hide caption

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Camila Domonoske/NPR

"Investors are actually demanding ... more discipline from these shale producers," says Gildea. "They want return of dividends and cash back to shareholders versus prioritizing just growing production."

The result: Production in the Permian is still growing, but it's growing more gradually. And it's been growing steadily even as prices swing around.

That's good for producers, including OPEC+

More restrained investment means oil companies are less likely to suffer the busts that used to roil the industry.

And while oil prices are high, companies are paying down debt, merging with rivals to strengthen their positions and churning out cash. That has positive economic impacts for individual companies, for oil-producing regions like the Permian and for a major segment of the American economy.

More discipline from American oil companies is also good for the global cartel known as OPEC+.

The shale revolution has reshaped global oil politics, turning the U.S. into the world's top's producer and an OPEC+ rival instead of just a customer.

That means that any time OPEC+ considers cutting production, it has to weigh whether U.S. producers will jump in to pump more crude, seizing more market share from the cartel.

That's much less of a concern today. With shale producers keeping their growth in check, OPEC and its allies can cut output, pushing up prices, without risking a shale bonanza.

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In fact, Saudi Arabia announced yet another voluntary cut in production over the weekend, while some other members of OPEC+ extended their own voluntary cuts.

"They believe, over the medium term, that they are in a very strong position in the market, that shale companies do have to respond to shareholders who do ask for capital discipline," says Helima Croft, global head of commodity strategy at RBC Capital Markets, who was in Vienna for the OPEC+ meeting.

The impact on markets will play out for years, Croft predicts.

And it's not great for consumers

As usual, good news for oil companies is bad news for oil consumers – even if it's not currently visible from prices at the pump.

Gasoline prices in the U.S. currently average a little over $3.50 nationally, more than a dollar lower than last year. For the next few weeks and months, gasoline analysts aren't predicting anything close to last year's sky-high prices.

But in the medium- and long-term, less investment in oil production means less supply, which drives prices up.

A customer pumps gas at an Exxon gas station in Houston, on July 29, 2022. U.S. oil companies are becoming a lot more restrained about production, and that could keep gas prices high over the longer term. Brandon Bell/Getty Images hide caption

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Brandon Bell/Getty Images

America is going through an oil boom — and this time it's different (7)

A customer pumps gas at an Exxon gas station in Houston, on July 29, 2022. U.S. oil companies are becoming a lot more restrained about production, and that could keep gas prices high over the longer term.

Brandon Bell/Getty Images

To be clear, U.S. oil production is still increasing, but it's not increasing as quickly as it once would have.

The big wild card is whether a global recession materializes. But if it doesn't, analysts think supply will continue to lag demand, given the restrained production from U.S. and OPEC+ producers.

A forecast released this week by Enverus, an energy data analytics company, predicts Brent, the global crude benchmark, will top $100 a barrel again later this year.

The impact on climate is less clear

Climate scientists say the world needs to rapidly reduce its use of oil and natural gas and implement other emissions cuts to limit the devastating impacts caused by climate change. And that's doable, they say, thanks to cheaper renewable energy and other alternatives.

So is a slower-growing Permian in line with a transition away from oil?

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Gildea argues that this restraint from producers could free up money and bandwidth for companies to focus on cleaner energy and emissions reduction, positioning themselves to continue to profit as the world shifts away from oil.

But so far, oil and gas companies are sending the bulk of their cash back to investors in the form of dividends and share buybacks, rather than dedicating it to new, greener ventures.

And the sheer profitability of oil means that companies have very little incentive to invest in anything else — in fact, they can be punished by the market if they try.

Oil companies are also unconvinced that the world actually will transition away from oil, at least at anything approaching the speed necessary to stop climate change.

Blocks of ice drift on the water off the coast of Collins glacier on King George Island, Antarctica, on Feb. 1, 2018. Climate scientists say the world needs to quickly start addressing the devastating impacts caused by climate change. Mathilde Bellenger/AFP via Getty Images hide caption

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Mathilde Bellenger/AFP via Getty Images

America is going through an oil boom — and this time it's different (10)

Blocks of ice drift on the water off the coast of Collins glacier on King George Island, Antarctica, on Feb. 1, 2018. Climate scientists say the world needs to quickly start addressing the devastating impacts caused by climate change.

Mathilde Bellenger/AFP via Getty Images

The oil industry is talking (and advertising) about climate change now, but companies are openly skeptical about the actual speed of a transition away from oil. That's true for big companies — and small ones.

The U.S. oil patch may have discovered restraint. But there's no indication that it's on the road to reinvention.

America is going through an oil boom — and this time it's different (2024)

FAQs

America is going through an oil boom — and this time it's different? ›

America is going through an oil boom — and this time it's different Business is pretty good in America's busiest oil patch. Prices are high enough to turn a profit and then some. But instead of going wild, producers have been aiming for something new: Discipline.

Is oil drilling increasing in the US? ›

In the first half of 2023, drillers increased the number of new wells by 12% (624 wells) compared with the same period in 2022. This growth in the number of new wells indicates that growth in production is supported increasingly by increased productivity despite fewer operating drilling rigs compared with the past.

What state had an oil boom? ›

It was one of the largest oil gushers in history. huge oil boom in Texas, much like the California Gold Rush in 1848.

Is the US producing more oil in 2024? ›

The agency previously predicted that U.S. production would decrease slightly through the middle of 2024 and would not exceed the record set last December until February 2025. However, the agency now forecasts steadily increasing production with output surpassing last year's record by the fourth quarter of 2024.

Is the oil field booming? ›

“The U.S. is now producing more crude oil than any country ever has, because Texas oil and gas companies, and Texas independents in particular, are growing production in the Permian Basin for the benefit of the American people and the American economy.

Where is the US getting most of its oil? ›

  • The top five sources of U.S. crude oil imports by percentage share of U.S. total crude oil imports in 2022 were:
  • Canada60%
  • Mexico10%
  • Saudi Arabia7%
  • Iraq4%
  • Colombia4%

What are the top 3 states for oil drilling? ›

In 2022, five states combined accounted for about 72% of total U.S. crude oil production.
  • The top five crude oil-producing states and their percentage shares of total U.S. crude oil production in 2022 were:
  • Texas42.5%
  • New Mexico13.3%
  • North Dakota8.9%
  • Colorado3.7%
  • Alaska3.7%

Which US state has the most oil? ›

Texas is by far the largest oil-producing state in the United States. In 2023, Texas produced a total of over two billion barrels. In a distant second place is New Mexico, which produced 667.5 million barrels in the same year.

Is the US rich in oil? ›

The United States became the largest producer of crude oil of any nation in history in 2023. Natural gas production reached record highs. Employment in oil and gas extraction peaked at 267,000 in March 1982, and totaled 199,500 in March 2024.

When did America have an oil crisis? ›

Ultimately, the oil crisis of 1973 and the accompanying inflation was a result of many factors culminating in a perfect economic storm.

Why don't the US use its own oil? ›

You see, the U.S. does produce enough oil to meet its own needs, but it is the wrong type of oil. Crude is graded according to two main metrics, weight and sweetness. The weight of oil defines how easy it is to refine, or break down into its usable component parts, such as gasoline, jet fuel and diesel.

How many years of oil left in US? ›

Oil Reserves in the United States

The United States has proven reserves equivalent to 4.9 times its annual consumption. This means that, without imports, there would be about 5 years of oil left (at current consumption levels and excluding unproven reserves).

Who has the most oil in the world? ›

Having more than 300 billion barrels of oil reserves, Venezuela has the most oil reserves in the world. Saudi Arabia has the second-largest oil reserves globally. Venezuela still faces economic difficulties in spite of its enormous natural resource base.

Is oil going to skyrocket? ›

Oil prices are expected to remain high in 2Q24, averaging $90, which is $2/b higher than in the previous month's STEO due to the tighter market balance. They forecast that oil inventories will start to rise in 2025 because EIA think that once the OPEC+ supply cuts expire, production will rise.

Is the US pumping more oil now than ever? ›

The United States produced more crude oil than any nation at any time, according to our International Energy Statistics, for the past six years in a row.

Is America drilling its own oil? ›

US output – led by shale oil drillers in Texas and New Mexico's Permian Basin – is so strong that it's sending supplies overseas. America is exporting the same amount of crude oil, refined products and natural gas liquids as Saudi Arabia or Russia produces, S&P said.

Is US oil production increasing or decreasing? ›

Crude oil production in the United States, including condensate, averaged 12.9 million barrels per day (b/d) in 2023, breaking the previous U.S. and global record of 12.3 million b/d, set in 2019. Average monthly U.S. crude oil production established a monthly record high in December 2023 at more than 13.3 million b/d.

Why are American oil companies not drilling more? ›

According to Bloomberg, “U.S. oil companies generally have been reluctant to pump more, preferring to steer cash flows back to investors instead of spending it on new drilling that could flood the world with cheap crude.”

Is the world transitioning to American oil from Saudi crude? ›

Between 1980 and 2024, global oil consumption nearly doubled. So what's true, and has been for a while, is that the world is transitioning away from Saudi crude to American oil — not just from the US, but also Canada, Brazil and Guyana.

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