Speaking on dramatic changes in oil and gas markets at the EnerCom energy conference in Denver, Colorado this week, Continental Oil CEO Harold Hamm addressed the need for American drillers to show “fiscal discipline” in the face of an oversupplied market that is spooked by the prospect of a lingering and expanding trade war with China, and a global economy that is showing signs of weakness. The Organization of Petroleum Exporting Countries (OPEC) recently lowered its forecast of global oil demand based on a darkening global economy and the potential that the trade war initiated by President Trump may slow the Chinese economy, which would then spread to global markets.
Cutting back on US shale production would help bolster the price of oil, West Texas Intermediate, the benchmark for US oil, closed on Friday at $54.87 per barrel, up 0.7%.
Oversupply in oil markets and a corresponding reduction in oil prices can inflict severe damage on American drillers and the entire industry especially if drillers attempt to make up losses in the market price through additional volume. Hamm suggested that Wall Street investors are no longer willing to inject capital into drillers who show no prospect for of producing long-term and continuing profits. OPEC and Russia have continued to limit production in an effort to boost global oil prices, and those cuts are expected to continue until March 2020.
Hamm also spoke on the future of natural gas in a market where oil continues to be the primary economic engine. Even with the prospect of LNG (liquified natural gas) export terminals increasing the ability of shale producers to find markets for that product, Hamm said, ““anyone drilling gas prospects today, they shouldn’t be.” Presumably, this is because natural gas, as a byproduct of oil production, continues to be overproduced and prices continue to be unattractive to support pure natural gas drilling plays.