The Scoop
ExxonMobil plans to forge ahead on increasing oil output over the next five years despite signals that the global market is already oversupplied, the company’s head of shale production told Semafor.
The price of oil on the US benchmark fell below $70 per barrel over the last two weeks, as US President Donald Trump’s rapidly-shifting tariff threats have sparked fears of a recession. There may be more downside ahead: The International Energy Agency warned on Thursday that “deteriorating” macroeconomic conditions and OPEC’s decision to raise its production quotas mean the market will be oversupplied throughout this year, and Trump’s trade adviser Peter Navarro said the administration would be glad to see prices as low as $50.
Exxon has been preparing for a moment like this, said Bart Cahir, the company’s senior vice president for upstream unconventional. Drilling technology innovations and the company’s $60 billion acquisition last year of rival driller Pioneer Natural Resources have helped drive down Exxon’s production costs, giving it a kind of insurance during one of the most uncertain periods in the industry’s history. Exxon can still turn a profit with prices as low as $35, Cahir said, a price that, apart from the pandemic, was last seen in 2003.
“We believe our operating costs are the lowest in the industry, which means we get more out of each barrel we produce,” he said. “That gives us tremendous resilience when you get into softer parts of the commodity cycle.”
The company still plans to increase Permian Basin production from 1.5 million barrels per day last year to 2.3 million by 2030. And although it hasn’t published a specific target beyond that date, Exxon doesn’t anticipate much of a decline in global oil demand anytime in the foreseeable future.
“We’re committed to growing,” Cahir said. “We see the ability to do that while creating significant value for our stakeholders.”
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Tim’s view
For as long as there’s been an oil industry, people have poured enormous effort — often without much success — into trying to predict future demand. Today, the question is more urgent, and more uncertain, than ever, as the imperative of decarbonization in the face of the climate crisis collides with surging demand in emerging economies. At the CERAWeek conference in Houston this week, there’s been a “reset on the recognition of the pace of the energy transition,” as Cahir put it — a growing sense that the climate ambitions of former US President Joe Biden and other world leaders are losing political momentum and also running into the hard realities of cost and logistics. If that’s true, it’s bullish for oil. And if it’s not — in other words, if EVs and renewables gain momentum — companies like Exxon have little choice but to drill anyway, cutting costs as much as they can and hoping to be the last one standing.
Privately, some oil industry insiders here told me they are indeed worried about the risk of a recession — less consumer spending means less oil demand — and don’t understand what Trump intends to gain with his tariff threats. Even before the trade wars heated up, there was an unresolved tension between Trump’s goal to bring down energy prices and his goal to boost drilling. Energy Secretary Chris Wright said this week that he’s confident drilling can continue even at $50 per barrel, but many economists believe that, apart from a behemoth like Exxon, most companies will start to close down rigs below $70.
Lorenzo Simonelli, CEO of oilfield services company Baker Hughes, told me this week that there’s a concerted push across the industry to do more with less, and that total US production will likely increase this year even if the rig count — which is about 5% lower now than it was a year ago — continues to decline.
Short-term volatility aside, the prevailing perception at CERAWeek is that alternative energy sources, rather than displacing fossil fuels per se, will soak up the growing demand for electricity, leading less to an energy “transition” and more to energy “addition.” No one here believes oil demand is going up. But at least in these circles, few see it going away.
“There’s not going to be a ‘peak’ for oil. It will be a very flat peak and decline very, very moderately after that,” Eirik Waerness, chief economist at Equinor, said during the conference. “We’ll stick with oil for as long as we don’t have an alternative.”
Room for Disagreement
Jeff Currie, chief strategy officer of energy pathways at the private equity firm Carlyle, is less optimistic. In a paper this week, he argued that national security concerns, rather than climate action per se, will drive a contraction in the oil market as countries that aren’t major producers scramble to build up alternative domestic energy sources.
“Tariffs are the next best thing to a carbon tax,” he said during the conference. “If trading is under threat, oil is under threat. If Bretton Woods defined the oil age, and Bretton Woods is over, what happens to the oil age? It’s not going to be a plateau, it’s going to be game over.”
Notable
- US oil and gas resources are the key to paying down the national deficit, Interior Secretary Doug Burgum said on Wednesday. “If Interior was a company it would have the largest balance sheet in the world,” he said. “It’s our responsibility to get a return for the American people.”