Scott Sheffield, chief executive of U.S. shale giant Pioneer Natural Resources, told the CERAWeek energy conference in Texas this week that oil prices have bottomed out and could surge 17% by summer.
In the past year to December, U.S. production has grown by only about half of what was expected, and the industry has been grappling with declining refining capacity and inventories, Scott Sheffield said in an interview.
The price of West Texas Intermediate (WTI) has been fluctuating around $73-$80 a barrel in recent months. On Thursday (March 9), WTI crude oil prices were hovering around $77 a barrel, while Brent crude oil prices were around $83 a barrel.
Production growth will slow
Sheffield expects oil production growth to slow sharply. This doesn't mean that production isn't growing, it's just that refining capacity and inventory constraints keep growth from growing so fast.
According to the U.S. Energy Information Administration (EIA), U.S. crude oil production will average 11.9 million barrels per day in 2022, down from a record average of 12.3 million barrels per day in 2019. The EIA forecasts oil production will average 12.4 million barrels per day this year.
Sheffield believes the U.S. could return to production of around 13 million barrels per day within two to three years, which is on par with the level recorded in November 2019. It will be a very slow pace, he added.
As for the slow growth of crude oil production in the United States, there are two reasons: one is insufficient refining capacity; the other is limited inventory.
Sheffield noted, “First, we don’t have refining capacity. If we all add rigs, service costs will go up another 20%-30%, which will take away free cash flow. Second, the industry doesn’t have enough inventory.”
He added, "Our estimate for free cash flow last year was $8 billion, and we expect free cash flow in 2023 to be only $4 billion."
As for when oil prices will rise, Sheffield expects, "Sometime this summer, WTI will break through $80 and move towards $90 a barrel."