With the cost of oil expected to hold above $100 per barrel, and the president ordering the release of 1 million barrels of oil per day from the Strategic Petroleum Reserve– the largest known emergency supply in the world- in a bid to bolster supply, one might think that Big Oil is working to increase production. They’re not- and they have been reducing capital expenditures for years.
So why is Big Oil shrinking?
First, some context- the price of oil is notoriously volatile, while exploration, production and refining costs are very capital intensive. We are all feeling the effects of the surge in oil and gas prices since 2021, though it was barely two years ago (April 20, 2020) that the benchmark for U.S. crude oil prices absorbed the worst one day drop on record, and settled at negative $37.63 per barrel. The unprecedented drop was due to a pandemic-related collapse in demand, a resulting surge in supply, along with a Russia-Saudi oil-price war.
Fast forward, and oil peaked to an intra-day high of $130.50 on March 7th of this year, gas prices have skyrocketed across the country, and increased investor pressure has forced publicly traded oil companies to be cautious about investing in increased production. Although spending for renewables is rising, Big Oil capital spending in oil and gas has been in decline for years. Private companies operated 49% of the 1,106 active oil-rigs in the U.S. at the start of 2019, compared with operating 62% of the 734 active rigs today. This phenomena is also happening in Europe, where European Big Oil companies are planning to spend their windfall from high energy prices on becoming Small Oil.
Here is a great article profiling the 84 year-old owner of a private oil producer in Texas who, with other ‘Little Guys’, is helping meet the calls to increase domestic production. What are your thoughts on Big Oil and the price of gas?
~ Brian Kasal- The Leadership Matrix
P.S.- Did you see my last Leadership Matrix post- A Better Means of Tax Collection?
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