Investing.com -- The US tight oil sector has defied expectations in 2024, particularly in the Permian Basin, amidst challenges such as declining rig counts and a wave of mergers and acquisitions (M&A).
According to analysts at Macquarie, the sector has maintained strong activity levels thanks to increased efficiency, cost reductions, and strategic drilling. This could potentially result in a positive surprise in US oil supply.
Despite the decrease in rig counts, the US tight oil sector has managed to sustain its activity levels better than anticipated, especially in the Permian Basin. Efficiency gains and effective cost management have helped offset the challenges posed by industry consolidation and lower rig activity.
Macquarie analysts believe that these factors could lead to unexpected growth in US oil supply, particularly if crude prices remain stable in the current range.
The stability in the sector can be attributed to significant gains in drilling efficiency, particularly in the Midland area of the basin. These gains have been so substantial that drilling productivity is nearing the levels observed during the COVID-19 pandemic when rig counts were at a minimum.
Increased efficiency has allowed production to continue growing despite the decrease in the number of rigs in operation. Publicly traded US producers have reported strong sequential growth in the second quarter, with outlooks for the second half of 2024 pointing towards further upside potential.
Efficiency gains are helping to mitigate the effects of reduced drilling activity across the industry, with the Midland Basin showing signs of improved productivity per rig, potentially leading to increased oil output from the region.
Permitting trends in the Permian Basin have remained strong through the middle of 2024, indicating ongoing confidence in the region's production potential. Both public and private operators are continuing their operations despite the industry landscape being reshaped by M&A activity.
Macquarie analysts anticipate that these factors will contribute to sustained growth in US oil production, especially if current efficiency trends persist.
Analysis:
The US tight oil sector has shown resilience in 2024, with the Permian Basin standing out amidst industry challenges. The sector's ability to maintain activity levels through efficiency gains and cost management has surprised analysts, potentially leading to increased oil supply. This could have a positive impact on the US oil industry and economy, as sustained production growth is expected. Investors and industry stakeholders should monitor these trends closely to capitalize on potential opportunities in the market.