The largest western oil producers are mostly sticking with their growth plans for now, despite a 16 per cent decline in crude prices during April and a decision by the Organization of Petroleum Exporting Countries and their allies (Opec+) to crank up output in June.
Exxon Mobil, Chevron, Shell and TotalEnergies all maintained their capital spending plans as they reported first-quarter results last week. BP was the exception, cutting spending under pressure from activist investor Elliott Investment Management.
The steadfastness of the so-called oil majors comes as the market appears to be over-supplied. Prices are at a four-year low as tariffs threaten to hurt the global economy and curb energy demand, and following the surprise decision last month by Opec to increase production.
Even more supply is on the way. Opec+ members led by Saudi Arabia and Russia agreed to add 411,000 barrels a day next month, the group said following a meeting on Saturday (May 3).
Big Oil’s message that it will grow production in spite of lower prices contrasts with the position of US shale operators, who generally need more than US$60 a barrel to break even. West Texas Intermediate, the US benchmark price, closed 1.6 per cent lower last Friday at US$58.29 a barrel in New York. One shale-focused company, EOG Resources, said last Thursday that it had already reduced its growth plans for 2025.
US President Donald Trump has repeatedly urged domestic producers to ramp up output as part of his policy of US energy dominance, as well as to keep prices in check. On Friday, he touted low petrol prices as a key economic achievement of his first 100 days in office.
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Exxon and Chevron on Friday reiterated their plans to grow production this year by about 7 per cent and 9 per cent respectively. Both companies expect more barrels from Kazakhstan, where they are partners on the recently completed Tengiz expansion project. The country has repeatedly flouted its Opec production quota, frustrating Saudi Arabia and spurring the kingdom’s pivot towards pushing for more supply to punish laggards among the group of producing nations.
“The presence of US companies like ExxonMobil and Chevron in Kazakhstan could play a key role in driving the supply growth,” Mukesh Sahdev of Rystad Energy said in a note last Friday. “This raises questions about the potential for US backing to pressure Opec+ into adding more barrels to the market.”
Much of Kazakhstan’s production is operated by foreign companies, and there’s little sign of efforts to rein in the flow of oil there. Chevron chief executive officer Mike Wirth said he didn’t discuss possible curtailments at Tengiz, the Kazakh project ramping up to 1 million barrels per day later this year, at a recent meeting with Kazakh leaders.
“The barrels we produce at (Tengiz) are of high value to the government, they’re important to their fiscal balance, and historically those barrels have not been curtailed,” he said on Friday.
EOG, which fracks in the Permian Basin, cut US$200 million from its budget for this year and dialled back its forecast crude output growth to 2 per cent from a previous view of 3 per cent. Analysts at JPMorgan Chase have called the move the “canary in the coal mine”.
Nabors Industries, a Houston-based drilling contractor, said last week that shale producers plan to cut 4 per cent of their drilling rigs by the end of the year, citing a survey of nearly half the industry.
Still, such cutbacks are unlikely to have an immediate effect on global supply. US shale “is foreshadowing modest (at best) adjustments to lower oil price as the market digests a gathering storm of macroeconomic indicators”, said Stephen Richardson, an analyst at Evercore ISI.
And in any case, efforts by independent operators to cut back on US shale are likely to be offset by Exxon and Chevron, who have grown so much in recent years that they now make up a much larger portion of overall production. Chevron increased output 12 per cent over the past year to almost one million barrels of oil equivalent a day while Exxon is targeting 1.5 million barrels, a 25 per cent increase, after buying Pioneer Natural Resources.
It all adds up to a lot of oil, at a time when the global economy is expected to slow down, hurting demand.
“With that degree of economic uncertainty, it’s hard to see a catalyst that could accelerate oil and gas demand over the next two quarters,” said Nick Hummel, a St Louis-based analyst at Edward Jones & Co. “We’re probably in a modest commodity price environment over the near to medium term.” BLOOMBERG
