Oil producers in Texas are kicking into gear in answer to the world’s thirst for oil, yet economists fear the rise in output isn’t happening fast enough to keep crude prices calm for long.
Oil prices inched toward $100 a barrel again Friday after retreating last week on news the Biden administration would make historic withdrawals from the Strategic Petroleum Reserve — 1 million barrels a day for six months.
The number of operating rigs in the U.S., meanwhile, jumped by double digits this week as American oil producers return to the oil patch. Analysts said producers have done the math, calculating a long-term need for oil as the post-pandemic economy fires up and as Russian oil slides from the market.
The number of drilling rigs operating nationally climbed by 16 to 689 this week, according to oilfield services company Baker Hughes; 11 of the rigs added last week were in Texas. Energy companies have added 257 rigs over the past year, a 59 percent increase from 432 during the same week in 2021.
The number of rigs has been rising in recent weeks, coinciding with soaring oil prices pushed higher by the conflict in Eastern Europe. The U.S. benchmark, West Texas Intermediate, settled at $98.26 a barrel Friday, up 2 percent from Thursday.
While oil prices have retreated from a peak of about $123 per barrel March 8, analysts said releases from the nation’s strategic reserve aren’t enough to replace the supply gap caused by the loss of Russian oil. There was already a growing gap between supply and demand when Russia invaded Ukraine.
“Economic recovery post-COVID was occurring much more rapidly than supply recovery was,” said Karr Ingham, a petroleum economist with the Texas Alliance of Energy Producers, an oil and gas trade group.
Russia aside, he said, U.S. output is still down by 1.3 million barrels per day compared with November 2019, when the nation was pumping out almost 13 million barrels daily. “It’s pretty clear to me the rig count continues to play catch-up.”
The releases will bring down prices for a spell, he said, but they can’t fill the gap. Crude prices were already over $90 a barrel before Russia invaded Ukraine. If the Biden administration wants to help consumers, Ingham said, he needs to do more to encourage domestic production.
“Abundance is the key to affordability,” he said, noting prices won’t stay below $100 a barrel until more is done to close the gap between supply and soaring demand. “The only way that this is not transitory is if the industry makes a lot of headway.”
To do that, U.S. energy policy should do more to acknowledge oil’s role as an asset rather than a liability, said Todd Staples, president of the Texas Oil and Gas Association, an industry trade group.
“The U.S. rig count has been climbing for over a year,” he said, “led by the Permian Basin in Texas, despite canceled pipeline projects, delayed approvals for permits, the discouragement of additional expansion and calls by American leaders for foreign countries to increase production.”