This Year’s International Oil Prices Expected to Be Determined by US Oil Production Increase, Not the Middle East

US Oil Production Peaks... Expected Decrease of 500,000 Barrels in Output
Oil Companies Face Debt Concerns... Over $200 Billion in Debt Maturing Within 4 Years

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] This year, international oil prices are expected to be driven not by major oil-producing countries such as those in the Middle East or the Organization of the Petroleum Exporting Countries (OPEC), but by changes in production levels of U.S. oil companies. Amid simultaneous production cuts announced by Russia and OPEC, the key factor influencing international oil prices will likely be how much U.S. shale gas companies continue to pursue an increase in production to expand their market share. Since the growth rate of U.S. oil production peaked last year and concerns over the financial instability of U.S. oil companies are high, volatility in oil prices is expected to increase somewhat going forward.

On the 2nd (local time), CNBC cited Chris Wipfler, an expert from Macro Advisory, a consulting firm specializing in Russian international affairs, who said that the level of international oil prices this year depends on how much U.S. oil companies can increase their oil production. He predicted that international oil prices could experience short-term adjustments and fluctuations. The direction of international oil prices hinges on how much the reduced oil volume, due to production cuts by oil-producing countries, is compensated for by U.S. companies.

Earlier last month, oil-producing countries including OPEC and Russia agreed to increase daily oil production cuts from 1.2 million barrels to 1.7 million barrels starting January 1 this year, adding an additional 500,000 barrels in cuts. U.S. oil companies increased daily oil production by 1.6 million barrels last year. Over the past eight years, as U.S. oil companies steadily increased production, international oil prices remained relatively stable around $60 to $70 despite external factors such as production cuts by oil-producing countries and escalating conflicts in the Middle East.

However, this year, the increase in production by U.S. oil companies is expected to fall short of last year's levels, raising concerns about greater volatility in oil prices. According to statistics from the U.S. Energy Information Administration (EIA), the growth rate of U.S. oil production is projected to be about 1.1 million barrels per day this year, down approximately 500,000 barrels from 1.6 million barrels per day last year. This is because U.S. oil production has peaked, and concerns over financial instability are growing among small and medium-sized oil companies.

The Wall Street Journal (WSJ) reported on the 1st (local time), citing data from international credit rating agency Moody's, that U.S. oil and gas companies have over $200 billion in maturing debt from 2020 to 2023. Significant debt has accumulated as these companies compete with major oil-producing countries such as OPEC and Russia for market share, continuously expanding drilling facilities and production volumes.

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