Jul 12, 2021 - Economy

America's depressed oil production

Data: Baker Hughes; Chart: Axios Visuals
Data: Baker Hughes; Chart: Axios Visuals

The demand for oil has been rising as consumers emerge from their homes, and businesses rev up to serve them. However, oil companies are dragging their feet on ramping up production, new data from Baker Hughes showed Friday.

Why it matters: When production doesn't keep up with demand, it drives prices higher. Oil companies used to respond enthusiastically to rising prices by drilling more, in an attempt to cash in.

  • But that resulted in supply gluts that lowered prices, sending many companies into bankruptcy.
  • Now, they're more disciplined, increasing production very slowly in response to demand.

By the numbers: Each week, Baker Hughes provides a tally of all the active oil rigs in the U.S.

  • As of July 9, there were just 378 active rigs, up only slightly from 376 the week before — but down from over 600 pre-pandemic.
  • A barrel of WTI crude is about $73, up from about $40 a year ago.

Meanwhile, crude inventories have fallen to their lowest level since February 2020. The inventory drawdowns confirm supplies are getting tighter.

Our thought bubble, via Axios’ Ben Geman: "Producers are exercising caution despite the demand revival and price rise. We're a long ways off from seeing the pre-pandemic output peak, if ever."

What to watch: Rising crude prices are visible to consumers in the form of what we pay for gasoline at the pump.

  • The Consumer Price Index report to be released on Tuesday will show how much energy prices are inflating.
  • And throughout earnings season listen for what companies say about energy costs they absorb versus the costs they pass on to customers through higher prices.
Go deeper