Production in the oil-and-gas-rich Permian Basin of West Texas and New Mexico hit records recently, juicing oil company profits and easing energy supply worries.
Why it matters: It shows U.S. oil companies are responding to higher prices, with increased drilling and pumping after what seemed like months of foot-dragging.
Context: Russia's invasion of Ukraine generated a global oil shock in 2022. U.S. crude climbed over $120 a barrel back in March, and average gasoline prices jumped to more than $5 per gallon in June.
- Still, U.S. production in the Permian Basin — one of the most productive and cost-effective oil fields in the world — remained below 2019 levels for most of the year.
- The lack of production growth from the industry became a focus for the Biden administration, with the President comparing oil companies to war profiteers and hinting that it could push for a tax on windfall profits.
State of play: Late last year, more pumps in the Permian Basin suddenly switched on.
- Production has risen 12%, to a record 5.6 million barrels per day in January.
Between the lines: After suffering a sharp downturn in prices in 2020 due to COVID-related lockdowns (oil prices, remarkably, turned negative in April 2020) producers have become gradually convinced that global demand for U.S. crude oil will stay strong, which is prodding them to boost production.
What they're saying: In the Fed's most recent Beige Book — where regional reserve banks report on economic conditions in their districts — Dallas officials wrote that business leaders "seemed confident that crude oil markets will remain tight for the next several years, keeping oil prices in the $80 to $90 per barrel range, which is high enough for most District producers to profitably drill new wells."
Yes, but: While oil production in the Permian Basin is booming, other fields have been relatively neglected. That means overall U.S. oil production has inched up at a much slower pace — it's about 6% higher now than it was a year ago.
- But the Energy Information Administration forecasts that the boom in the Permian will help push overall production to a new record of 12.4 million barrels per day this year.
Go deeper: The Financial Times has a nice on-the-ground report about what the boom feels like in southeast New Mexico (subscription required).
