Managing Partner Brian Williams, shares his current outlook for the oil and gas sectors, the new role data centers are playing, and the factors to watch in the coming months.
Policy Changes Expected to Have Minimal Impact on US Oil and Gas Production
While the new administration’s pro-energy production and pro-oil stance has heralded more positive discourse for the oil and gas sectors, this won’t necessarily lead to a spike in oil production. Domestically, oil production has never been more efficient. We’re leveraging new technologies to drill longer laterally and with record repeatability, producing more than 13 million barrels daily, with fewer than 500 rigs drilling for oil – a ratio not imagined possible a decade ago. I don’t expect opening up new lands for leasing to have a significant impact on the industry.
Moreover, creating a petroleum surplus in the market could undermine the profitability of U.S. oil and gas companies, removing incentives for them to invest in expanded oil exploration and drilling. It would also have a trickle-down effect on the wages and activity of the average oil field worker, with companies forced to lower wages to accommodate lower prices.
Crude Oil Market to Remain Stable
To compound this, the crude oil market is currently well-supplied both domestically and internationally. The US is producing record amounts of oil with fewer rigs due to increased efficiency in drilling and fracking – something that is unlikely to change dramatically regardless of domestic energy policy. We’ve reached an optimal range for oil prices and are optimistic that prices will remain stable at their current levels.
Oftentimes, the crude oil market is driven by geopolitical events. Therefore, the greatest potential disruptors of the crude oil market are sanctions and conflicts in developing nations.
Dynamic Natural Gas Market to Drive the Data Center Revolution
The natural gas market is more dynamic than that of the crude oil market. While natural gas prices have risen recently due to increased seasonal demand and the U.S. export of liquid natural gas to Asia and Europe, the long-term trend is more complex. Associated gas production from oil drilling in the Permian Basin is significantly impacting the market, increasing supply and suppressing natural gas prices.
However, we will continue to watch the explosion in the demand for power driven by the build-out of data centers to fuel the AI revolution. Natural gas is the most readily available “swing” fuel for electricity generation in the U.S. and will be crucial to companies building these centers.
