Oil prices have skyrocketed since the end of 2016, reaching a 3 1/2-year high this week and natural gas prices are at a 3-year high. One of the more painful downturns for the domestic petroleum business is now turning into a distant memory.
After losses for a number of years, U.S. oil producers may finally be able to reward their shareholders with positive returns as the country emerges victorious from a market share battle that the Middle East thought it would win. The shale oil sector’s resilience is thanks to technological advances and lower production costs that not only has set OPEC on its heels but could soon dethrone Russia as the world’s largest oil producer.
According to the International Energy Agency (IEA), the U.S. will overtake Russia to become the world’s largest oil producer by 2023.
In the meantime, U.S. companies should start to benefit from the recent surge in revenue. As reported by Reuters, nearly one third of the 25 top U.S. shale oil producers have paid or promised to pay dividends in 2018. That is the largest number since the shale boom kicked off about a decade ago.
While U.S. oil companies’ first-quarter results, which will be released in the coming weeks, will provide the latest evidence on how the sector is performing with much higher oil prices, the fourth quarter of 2017 augured the current turnaround. And this was well before oil was knocking on $70 a barrel. For example, ConocoPhillips earned $1.6 billion in the fourth quarter of 2017, a significant improvement from 2016, when it posted a net loss of $35 million.
The oil price recovery has been driven by the Organization of Petroleum Exporting Countries restraining output. But, it took them a long time for the member countries to curb their oil output. At first OPEC fought America’s emerging dominance by overproducing and thus driving down the price of oil. But with U.S. producers more efficient than ever – and thus able to turn a profit even with low prices -- the cartel’s strategy failed.
The current oil boom appears to have staying power: Goldman Sachs recently upped its oil price forecasts, placing a three-, six- and 12-month price target on Brent crude oil, the benchmark European crude, of $75, $82.50 and $75 a barrel, respectively, from $62 previously.
However, Goldman expects higher U.S. shale production will eventually kick in, and by 2020 the investment bank sees Brent crude oil falling to $60.
The North American crude oil benchmark, West Texas Intermediate, crossed above $69 per barrel Wednesday night, its highest price point since Dec. 2, 2014.