It will Be A Hard Sell8 Apr 2024 11:11
Bank of America in early April increased its 2024 Brent and WTI price outlook to $86 and $81 per barrel, respectively, and said both were likely to peak around $95 a barrel this summer. Those higher prices so far have not been enough to entice U.S. drillers to boost production, operators and service firm executives said, as many are grappling with a steep decline in the value of gas produced alongside their oil.
In Texas, Louisiana and New Mexico, producers were already cutting output in the first quarter as costs climbed. The break-even price to drill a new well in the Permian, the top U.S. shale field, rose $4 per barrel in the last year, according to a survey by Federal Reserve Bank of Dallas.
Now, low gas prices are creating new challenges. Henry Hub futures, the benchmark for U.S. gas, are trading below $1.80 per million British thermal unit (mmBtu), and earlier this year dropped to a 3-1/2-year low on warm weather and oversupply. "We need gas prices to get to $2.50 for an overall increase in activity. The Permian customers that have associated gas are seeing awful differentials," said Mark Marmo, CEO of oilfield firm Deep Well Services.
In West Texas producers are paying to have shippers to take their gas. Prices at the region's Waha hub have been below zero in several trade sessions since March, a sign that supply is sharply outpacing demand and pipeline capacity.
Producers can respond by reducing their output or pay to keep pulling gas out of the ground. It"Constrained gas pipeline and gas processing plant capacity has acted as a choke point on oil production in parts the Permian Basin," said Tim Roberson, president of Permian producer Texas Standard Oil.
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