US oil output solid near-term but less so further out

Significance

Output will expand at a steady pace while oil prices remain at profitable levels. However, US policy towards the sector has to incorporate a major contradiction: encouragement in the short term, and possibly longer, while also designing policies to minimise fossil fuel consumption eventually in line with climate change mitigation targets.

Impacts

• Growth in oil production, led by the Permian basin, will result in gas surpluses, creating a wide open arbitrage for US LNG exports.
• The energy transition will hit petrol demand but other areas of oil product demand should remain relatively firm, particularly jet fuel.
• Demand will provide US oil producers with profitable markets at home and abroad; over time, output growth will depend more on exports.