AN ECONOMY IN ITS OWN RIGHT: The Permian alone now produces more crude per day than Iran or the United Arab Emirates.193
FORTUNE.COM // JUNE .1 .19
thinks that there’s an upside for com-
modity prices themselves,” says longtime
energy economist Michelle Michot Foss, a
fellow at the Center for Energy Studies at
Rice University’s Baker Institute for Public
Policy.
Indeed, even with production disruptions
resulting from the reactivation of Iran sanc-
tions in May—as well as turmoil in other
OPEC exporters like Libya and Venezuela—
the Permian has created such an abundance
of supply that it can quickly make up for
lost inventory. In the years between 2009,
when the Great Recession ended, and 2014,
there’s been a paradigm shift in the industry,
says Devin McDermott, an equity analyst at
Morgan Stanley: “We’ve gone from a decade
of resource scarcity, and the focus on peak
oil supply—‘when do we run out of oil?’—to
more oil than we need.” What’s more, there’s
enough still in the Permian ground to last at
least the next 20 years.
Now, after generations of seesawing
crude cycles, companies are wondering
whether the best they can hope for, in terms
of prices, is flat. “The industry is realizing
they can’t count on higher prices,” says Dan
Pickering, president of Tudor, Pickering,
Holt & Co., an energy investment bank
headquartered in Houston. He expects oil to trade between $50
and $75 a barrel for the foreseeable future. After all, he says, there
are also political forces at play—with, on the one hand, the OPEC
oil cartel ready to slash output if prices fall to unprofitable lows, and
on the other, President Trump determined to ensure gas stays cheap
to fuel the U.S. economy. “My view is, we’ve determined the price
range for crude: OPEC is cutting production at $50, and Trump
is tweeting at $70,” adds Pickering. Since taking office, Trump has
tweeted increasingly often about oil and gas prices—eight times so
far in 2019, and three in April alone—generally calling on OPEC to
pump more supply to market.
The price may not exactly be a gusher, but the drillers are figur-
ing out how to live with it. In the past six months or so, U.S. energy
companies have trimmed capital spending, and cut down on the
number of rigs, boosting their profitability and allowing them to
retain more of their cash flow. “We kind of use the phrase ‘$60 is the
new $100,’ ” says Jonathan Waghorn, a onetime Shell drilling engi-DAN PICKERING : Tudor, Pickering, Holt & Co.