Publications: Notes at the Margin

Disorderly Markets or Refiner Output Discipline? (January 16, 2023)


US independent oil producers have practiced “capital discipline” since 2020. At the time, OPEC and its cooperating producing countries were threatening to drive prices down if the independents did not restrain investment. As Meyer wrote,


This new “capital discipline” has turned the industry into something of a cartel. Scott Sheffield, the head of Pioneer Natural Resources, the country’s biggest shale company, declared last year that no fracking company would drill a new well even if the price of oil went above $100 a barrel—which it has. “All the shareholders that I’ve talked to said that if anybody goes back to growth, they will punish those companies,” he said.[i]


Sheffield has repeatedly touted his firm’s discipline and has called on other producers to be similarly circumspect. In 2021, he offered this warning to his competitors:


“OPEC and Russia were upset that we grew too much,” said Sheffield. “If we ever start growing again too much, we’re going to have another price war.”[ii]


The CEOs of Hess Oil, ConocoPhillips, and Occidental Petroleum have heeded Sheffield and taken the “capital discipline” oath.


It now appears that refinery CEOs Joseph Gorder, Greg Garland, Thomas Nimbley, and Michael Hennigan have also taken the pledge. The oil company CEOs will likely not welcome their action and that of other refiners because it translates to them holding lower inventories, which suppresses crude oil prices while driving up product prices. While refining company shareholders are benefiting from this, the fracking companies headed by Sheffield and others and the major oil-exporting countries are losing money.

[i] Robinson Meyer, “America Is the World’s Largest Oil Producer. So Why Is Losing Russia’s Oil Such a Big Deal?” The Atlantic, March 8, 2022 [].

[ii] Kevin Crowley, “Shale CEO Warns of OPEC+ Price War if U.S. Oil Production Surges,” Bloomberg, April 14, 2021 [].


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