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U.S. Oil Production Could Be Here To Stay

When oil and gas prices began to fall in late 2014 a common view regarding the effects of these low prices began to develop. In short, the idea was that the low prices would cause many high cost producers to shut down, new investment would curtail and global supply would be drastically reduced, leaving the strongest, most profitable (mainly OPEC) to reap the benefits of a recovery in price.

That is not what happened. Production in the United States has remained extremely resilient. The resiliency in supply is undoubtedly fueled by technological breakthroughs in extraction technology, but to what extent. How can it be quantified? I recently ran across the data for Oil and Gas Extraction productivity in the U.S. and it tells a stunning story. As a control I also included overall U.S. productivity growth.

From 2012 to 2015 the average rate of change for Oil and Gas Extraction in the U.S. is 7.9% YoY. The U.S. economy saw an average increase in productivity of just 0.5% in that same time period. Not only does the productivity see those drastic increases, but also, we see the unit cost of labor for the Oil and Gas extraction Industry decrease by an average of 5.1% YoY.

The U.S. oil industry is undoubtedly hurting. Some areas in the U.S. with oil dependent economies are in recession, but the U.S. continues to produce, now more than ever.  In fact, we are now the largest producer of petroleum and natural gas in the world. Nearly two years ago it would have been a far-fetched idea to think that in an oil market with prices sustained below $50 a barrel, the U.S. could produce more than anyone else. The productivity and cost indices show it all.

It is easy to say now that the productivity spike in 2013 and 2014 paired with the unit labor cost plummeting could have been a harbinger of the price fall to come. Currently, we can use it to say that productivity is an extremely useful metric to gauge the sustainability of U.S. production. As long as productivity continues to grow and labor costs continue to fall, it is not unlikely that the U.S. will continue to sustain production.


An industry that is greatly affected by large volumes, but experiences less volatility as a result of WTI price swings would be oil storage companies or the producers of oil and natural gas storage devices. Decreasing oil price exposure while still gaining to oil supply and demand growth creates a unique value proposition and is an industry I will continue to look further in to.

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