US Oil Is Booming and It's Upending Global Markets

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, remember a couple years ago, when oil prices started booming, and there was this big story that production wasn't coming back, that all these oil companies had found discipline, they were all focusing on profits, et cetera, not just volume, and that the expectation would be that production would be depressed for a long time.

Tracy Alloway (0:36)

Wait, I don't think it wasn't that production was ever coming back. It was that production would slow substantially. And the idea was that...

This is one part of the oil boom story of the mid 2010s that always fascinated me. It was actually a capital market story. So it was all these investors who just poured money into shale oil, basically, and thought they were gonna make millions and millions.

Shale completely over expanded. It became very, very difficult for them to actually pump at a profit. And so they all started collapsing. They all started pulling back.

All the investors got burned and they were like, we're never gonna touch this industry with a 10-foot pole ever again. And then lo and behold, in sort of the early 2020s, shale starts to become profitable again. It starts to expand. It says it's expanding at a more disciplined pace than previously, but I have questions about that. But yeah, it's all changed. It's all turned around.

Joe Weisenthal (1:36)

Yeah, I'm glad you brought up that capital markets aspect. And that did seem to be, this idea of depressed production seemed to be all part and parcel of that, that suddenly financial conditions were tightening, that the market was placing this premium in this new non-ZERP world of cashflow today, et cetera. And so I'm still confused. What exactly happened with that story? There's lots of things as production has come back.

It seems like investors are still into the space.

Prices have come down. Then there's all kinds of obviously geopolitical stuff going on. It seems like it's a time to sort of take stock of what's going on in the energy world.

Tracy Alloway (2:17)

Yeah, well, US oil production in particular, right? I mean, I think that's an all time high.

Actually, if you look at domestic production in the US, I think it's something like 13 million barrels of crude per day and 20 million, including LNG and things like that. So an all time high. And it means that US oil basically accounts for one of every eight barrels of global output. So pretty big stuff there.

Joe Weisenthal (2:49)

Yeah, pretty extraordinary. So what happened to all the narratives? Is production coming back? Why have prices fallen? I'm very pleased to bring in the person we always love to turn to when it comes to oil and energy. I think we're gonna be speaking to our colleague, Javier Blas, Bloomberg Opinion columnist on oil and energy. Javier, thank you so much for coming back on Odd Lots.

Javier Blas (3:09)

Thank you for having me again.

Joe Weisenthal (3:11)

Javier, what is the deal with that? So like we're back at records again in the US production?

Javier Blas (3:16)

We add to record levels and it's just an incredible number. As Tracy said, if you look just at what we say is crude oil, it's more than 13 million barrels a day. But if you add on top of that number, other things that they go into the oil liquids streams, so like condensates and NGLs or natural gas liquids, bit of ethanol, et cetera, et cetera. We are well above 20 million barrels a day of oil production. That compares to 100 million worldwide. So you put everything together, the US is producing one in five barrels of oil consumed. That is just an incredibly high number.

And it doesn't seem to be about to stop. Probably it's gonna slow down a bit in 2024, but it's gonna continue to go up.

Tracy Alloway (4:04)

Okay, where is all that new oil actually coming from? Cause it's been a while since I've brought up the rig count chart. But if you look at the rig count chart, I mean, this is such a fun one cause you can see the big humps of the early 2010s and then the big slide into 2015 And now it seems kind of flat.

So there's been some increase between 2020 and 2022 The number of new rigs being drilled has gone up, but it's not like we're seeing a boom in new gas rigs and new exploration. So where is all this oil coming from?

Javier Blas (4:43)