Publication date:
November 2, 2024
Big Oil Boosts Output as OPEC Considers Supply Increase
Major oil companies are ramping up production, potentially weakening oil prices as OPEC contemplates boosting supply.
Fossil Fuels
U.S. oil majors Exxon and Chevron have significantly increased their oil and gas production, with Exxon boosting output by 24% and Chevron by 7% compared to last year. This growth is largely driven by record production in the Permian Basin. European counterparts Shell and BP have also increased production by 4% and 2% respectively, despite more aggressive net-zero targets.
This surge in production comes at a time when oil prices have already dropped about 12% over the past six months due to weak demand from China. The situation could further deteriorate if OPEC follows through with plans to increase production.
The industry's strategy has shifted towards producing oil and gas cheaply enough to withstand any energy transition scenario. Exxon, for instance, has doubled its profit margins per barrel since 2019 through acquisitions, divestments, cost-cutting, and efficiency gains. Chevron is now pumping 27% more oil and gas than a decade ago, despite halving capital expenditure.
The growth in U.S. production, currently about 50% higher than Saudi Arabia's, is helping to keep millions of OPEC barrels off the market. Combined with new supply from countries like Guyana and Brazil, this could mean that 5 million barrels a day of productive capacity will be available in 2025 that is not currently producing.
Analysts at Macquarie predict Brent crude could decline below $70 a barrel from the current $73, barring major geopolitical events. This price pressure could impact Big Oil's ability to pay dividends and buy back shares. However, companies like Exxon, Chevron, and Shell remain confident they can weather potential market softening due to their low-cost production capabilities.
The fundamental transformation of these companies' businesses has positioned them well for various market environments, particularly a softening one. This shift represents a significant change from just a few years ago when executives were focused on reining in capital spending and facing pressure to invest in low-carbon alternatives.
This surge in production comes at a time when oil prices have already dropped about 12% over the past six months due to weak demand from China. The situation could further deteriorate if OPEC follows through with plans to increase production.
The industry's strategy has shifted towards producing oil and gas cheaply enough to withstand any energy transition scenario. Exxon, for instance, has doubled its profit margins per barrel since 2019 through acquisitions, divestments, cost-cutting, and efficiency gains. Chevron is now pumping 27% more oil and gas than a decade ago, despite halving capital expenditure.
The growth in U.S. production, currently about 50% higher than Saudi Arabia's, is helping to keep millions of OPEC barrels off the market. Combined with new supply from countries like Guyana and Brazil, this could mean that 5 million barrels a day of productive capacity will be available in 2025 that is not currently producing.
Analysts at Macquarie predict Brent crude could decline below $70 a barrel from the current $73, barring major geopolitical events. This price pressure could impact Big Oil's ability to pay dividends and buy back shares. However, companies like Exxon, Chevron, and Shell remain confident they can weather potential market softening due to their low-cost production capabilities.
The fundamental transformation of these companies' businesses has positioned them well for various market environments, particularly a softening one. This shift represents a significant change from just a few years ago when executives were focused on reining in capital spending and facing pressure to invest in low-carbon alternatives.
