U.S. Oil Industry Warns Of Sharply Higher Costs

• The U.S. oil industry is facing a sharp increase in production costs,
• Dallas Fed survey: U.S. oil companies also have plans to expand production next year
• Despite rising costs, the six-month outlook for the industry remained upbeat

The U.S. oil industry is facing a sharp increase in production costs, the Dallas Fed energy survey’s latest edition has revealed.

The survey found that while activity in the oil patch continued to recover during the fourth quarter and production rose faster, costs also rose, for the third quarter in a row, and they rose sharply.

According to the Dallas Fed index, the reading for oil production in the period rose to 19.1 from 10.7 in the third quarter, but the cost input reading also rose, to 69.8 from 60.8 in the third quarter. The fourth-quarter reading is a record high.

Despite, or perhaps because of higher costs, the industry expects to spend more next year. Some 44 percent of respondents in the survey said they expected to increase capital expenditure slightly, with almost a third saying they expected a significant increase in capital spending in 2022. Only a modest 8 percent said they expected a decline in spending next year.

In terms of price expectations, the industry is cautiously optimistic. Asked about what price their companies are using to plan their capital expenditure, almost a third said that was between $65 and $70 per barrel. A smaller portion of about 25 percent said they would be budgeting n the basis of oil prices at $70 to $75 per barrel.

U.S. oil companies also have plans to expand production next year. According to 49 percent of respondents in the survey, “grow production” was the primary goal of their companies in 2022. Only 15 percent picked as their primary goal to maintain current production levels. For 13 percent of respondents, reducing debt was the primary goal for 2022.

Despite rising costs, the six-month outlook for the industry remained upbeat, although the reading for that indicator declined from 58.9 in the third quarter to 53.2 in the fourth quarter.

By Irina Slav for Oilprice.com

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