By Liz Hampton

(Reuters). Despite supply chain restrictions and labor shortages, U.S. oil production forecasts have been revised upwards. Higher prices are driving more drilling activity and better completions. Industry experts agree.

As oil prices in the United States remain at $100/barrel, thanks to Russia’s invasion and sanctions on Ukraine, more producers are answering calls for additional supplies. Although prices have increased 70% over the past year, this offsets inflation and fears of another pandemic.

According to East Daley Capital (which closely monitors energy supply to U.S. pipes), U.S. production will increase by 1.29 million barrels per daily (bpd) at 12.86million bpd. The latest projections show an increase of approximately 300,000. bpd (or 23%) over December’s forecast.

Permian Basin is the largest U.S. shale area that has made the United States an energy superpower. It accounts for the bulk of the annual increase – 1.13 Million bpd. Last week saw 332 of the country’s largest oil rigs drill there, which is more than any other location since April 2020.

According to AJ O’Donnell (East Daley Capital director), “U.S. Oil Prices are $30-40 per barrel higher than last year” and “rig counts have become more responsive to price movements,” AJ O’Donnell said.

PROFITS AT HALF OFF LEVEL

According to a Federal Reserve Bank of Dallas survey, the price of oil at $104 per barrel is about twice that of what Permian Basin producers believed was necessary to drill profitable wells.

According to Rystad Energy, March drilling permit filings in Texas reached 904, which is a month high that “reflects a strong expansion” of horizontal drilling in east Texas and New Mexico.

Shale firms also are tapping drilled-but-uncompleted wells, standbys that can be quickly added to production. U.S. data show that the February number of such wells decreased to 4372, which was their lowest point since 2013.

Enterprise Products Partners (NYSE : ) predicted that U.S. crude oil production would reach 12.4M bpd by December. That’s an 800,000 more than last year and within 5% from the pre-pandemic peak.

Tony Chovanec, senior vice president of the company, stated that there are nine million acres with potential production. With $80 oil we believe 2 million acres will move from lower to higher tier economics.

LIMITS FOR GROWTH

As major oil companies concentrate on increasing shareholder payouts and cutting down debt, private companies are increasing their activity. After many years of excess spending, public companies have vowed to boost their returns.

U.S. oil gains are comparatively small, said Tim Roberson co-founder Texas Standard Oil. Roberson cited spending restrictions, cash flowing to renewable energy, and problems in the supply chain.

He said that drilling will pick up in the second half of this year if supply chain issues are resolved or decreased.

Hess Corp (NYSE) has recently stated it is considering moving the timeline to add a fourth oil rig to North Dakota’s operations, if costs remain high.

Some people are not expecting robust growth. U.S. Energy Information Administration (EIA), this week, maintained its forecast for an 800,000. bpd rise to 12,000,000 bpd in the year ahead. BTU Analytics, an American Factset Company, projects that the U.S. will see its output rise by 962,000 BPD to 12.2 Million Bpd by year-end. This is slightly lower than the previous forecast.

Since the fourth quarter last year, we have been optimistic about supply. It has taken a while for the supply to start to emerge,” Al Salazar of Enverus Senior Vice President stated. Enverus anticipates that U.S. production will end in 2021 at 1 million bpd more than 2021.

Oil production started rising after a decline during the pandemic. According to the EIA, output remained at 11.6million bpd for close to two months before rising to an average of 11.8million bpd this month.

Matt Hagerty (a senior analyst at BTU Analytics) stated that there is little upside in the near term due to tight labor markets, shortages of materials such as steel and sand.

(For a graphic on oil production, click here: https://graphics.reuters.com/USA-OIL/OIL/zjvqkdroyvx)