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Report: As OPEC Extends Production Cuts, U.S. Drillers Begin Reopening Wells

By Howard Smith – Jun 8, 2020 at 9:31AM

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U.S. shale drillers are increasing production again, now that oil prices approach $40 per barrel.

Uncertainty continues in the oil market as OPEC and its allies extended output cuts over the weekend, while U.S. shale companies have begun reopening existing wells as stay-at-home restrictions ease across the country. The Wall Street Journal reports that companies including Parsley Energy (PE), Concho Resources (CXO), and WPX Energy (WPX) are already opening existing wells back up, while EOG Resources (EOG 7.34%) plans to increase production capacity beginning in the third-quarter. 

The report said that OPEC members were informed prior to their meeting that U.S. drillers were planning to turn taps back on, but still agreed to extend the OPEC+ output cuts another month through July 2020. 

oil barrel pouring oil turning into up arrow signaling price recovery

Image source: Getty Images.

The increase in U.S. oil production may be short-lived, however. Shale companies are reopening existing wells as U.S. states ease pandemic-related restrictions, and travel picks up. The International Energy Agency (IEA) said that road transport in areas with lockdown restrictions dropped between 50% and 75%. It also said that mobility represents 57% of oil demand. 

However, output from the existing wells that are being turned back on will decline quickly, according to the Wall Street Journal report. U.S. oil output is still widely expected to drop for 2020. The latest Baker Hughes Co. (BKR 6.30%) rig count data shows that the number of U.S. drilling rigs is 71% below year ago levels. 

"You pull all those rigs out, it's not overnight like a shut-in that you can just turn it back on," Kelcy Warren, CEO of pipeline giant Energy Transfer LP (ET 2.81%) said. "We're concerned about declines."

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

EOG Resources, Inc. Stock Quote
EOG Resources, Inc.
$119.93 (7.34%) $8.20
WPX Energy, Inc. Stock Quote
WPX Energy, Inc.
Concho Resources Inc. Stock Quote
Concho Resources Inc.
Parsley Energy, Inc. Stock Quote
Parsley Energy, Inc.
Energy Transfer LP Stock Quote
Energy Transfer LP
$11.34 (2.81%) $0.31
Baker Hughes Company Stock Quote
Baker Hughes Company
$22.28 (6.30%) $1.32

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