Sanctions on Russia have lifted our 2Q2022 WTI price outlook for this year by nearly $30/bbl relative to our 1Q2022 outlook, and by more than $20/bbl for 2023. But public US producers remain committed to fiscal discipline this year and service capacity increasingly sparse, foreclosing the possibility of a year of runaway US production growth. We see US oil supply expanding by 1.1 MMb/d entry to exit (Dec.-Dec.) in 2022, with output at the close of the year reaching 12.7 MMb/d, a level that will be difficult to surpass as activity levels are currently set to support those volumes.

In 2023, we see higher prices supporting US output growth of 1.2 MMb/d entry to exit, with production exiting 2023 at around 13.9 MMb/d.

Capital budgets expand in 2022, but increases are primarily driven by private operators and service sector cost inflation. Public operators (independents and globals) are set to increase spending from $41 billion to $60 billion, which is a significant increase. However, private operators are looking to more than double their budgets compared to 2021, raising spending from $23 billion to $49 billion. For public operators, the main drivers of the increased spend is not additional well counts: a lack of DUCs for conversions is driving new drilling activity, and service sector cost inflation of 15% will consume significant capital. DUCs were never much of a factor for private operators, who will face even greater cost inflation, estimated at 23% in 2022.

Rising oil and gas prices mean absolute and relative returns rise for both producers and service providers. Investors are the big winners this year and next, while the service sector regains pricing power, albeit at a slower pace. Independents are holding firm on fiscal discipline and are expected to return $111 billion to shareholders and debtholders this year. Private operators have not shown the same restraint and will continue to increase spending and activity, particularly in the Permian, with prices high enough to generate excess cash of over $30 billion.

Ask the authors a question about US oil supply.

Posted 26 April 2022 by Imre Kugler, Director, Upstream Research, S&P Global Commodity Insights and

Narmadha Navaneethan, Associate Director, Upstream Solutions, S&P Global Commodity Insights and

Prescott Roach, Sr. Analyst, North American Plays & Basins, S&P Global Commodity Insights and

Reed Olmstead, Executive Director, Upstream Research, S&P Global Commodity Insights

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.