American oil fields are gushing again.
Only three years after U.S. oil production collapsed during the pandemic, energy companies are cranking out a record 13.2 million barrels a day, more than Russia or Saudi Arabia. The flow of oil has grown by roughly 800,000 barrels a day since early 2022 and analysts expect the industry to add another 500,000 barrels a day next year.
The surge in output has helped push down gasoline prices, which have fallen by close to $2 a gallon since the summer of 2022 and are now back to levels that prevailed in 2021. It has also provided the Biden administration with substantial leverage in its dealings with oil-exporting foes like Russia, Venezuela and Iran while reducing its need to cajole more friendly countries like Saudi Arabia to temper prices.
But the comeback in U.S. oil production poses big risks, too. More supply and lower prices could increase demand for fossil fuels at a time when the world leaders, who are meeting in Dubai, are straining to reach agreements that would accelerate the fight against climate change. Most scientists say the world is far from achieving the goals necessary to avoid the catastrophic effects of global warming, which is caused mainly by the burning of fossil fuels like oil, natural gas and coal.
“We’re achieving energy security and reducing inflation by leveraging high-emitting, carbon-intensive oil production,” said Amy Myers Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University. “We’re going to need to address that conflict.”
The United States now exports roughly four million barrels a day, more than any member of the Organization of the Petroleum Exporting Countries except Saudi Arabia. On balance, the United States still imports more than it exports because domestic demand exceeds supply and many American refineries can more easily refine the heavier oil produced in Canada and Latin America than the lighter crude that oozes out of the shale fields of New Mexico, North Dakota and Texas.
Nearly every extra barrel of American crude produced is being exported, mostly to Europe and Asia, where supplies are tight. In addition, the natural gas that bubbles up with oil has also led to record exports of gas and helped to lower prices for that fuel and for electricity, much of which is produced at gas-fired power plants in the United States.
The surge in U.S. production has helped to end the energy crisis that gripped Europe after Russia’s invasion of Ukraine in February 2022 — at least for now. European countries have replaced much of the gas they were buying from Russia with gas from the United States, Qatar and other exporters. They have also reduced their use of natural gas, a phenomenon that was helped by a mild winter last year.
“There is a foreign policy dividend in keeping a lid on oil prices,” said David Goldwyn, who was a leading energy diplomat in the Obama administration.
Not long ago the U.S. oil industry was in deep trouble. It suffered repeated busts since 2015, culminating in a collapse of prices during the pandemic. Investors fled. Exxon Mobil was kicked out of the Dow Jones industrial average, and some European oil companies announced plans to pivot from fossil fuels to renewables more quickly.
With concerns over climate change growing, Joe Biden, during his 2020 campaign, promised to stop drilling on federal lands and federal waters offshore. He also pledged to accelerate the transition to renewable energy and electric cars to drastically reduce the emissions responsible for climate change.
But as president, Mr. Biden has taken a much different tack. While he has supported green energy and battery-powered cars, he has also hectored oil companies to increase production in an effort to drive down prices for consumers. He has approved a large drilling project in Alaska over the objections of environmentalists and a small number of offshore oil and gas permits.
Mr. Biden has been under pressure from some Democrats to trumpet gains in oil production as a way of reaching out to voters who are leery of high gas prices. He has yet to do so — but his administration has not complained about the production, either.
John Kirby, spokesman for the White House National Security Council, said the administration was committed to keeping energy prices low.
“The president is going to keep focusing, as he has been, on a healthy global market that’s properly balanced and that can continue to bring the price of gasoline down here in the United States,” Mr. Kirby said.
The pandemic took a heavy toll on U.S. oil production, which fell from 13 million barrels a day at the end of 2019 to just over 11 million barrels a day a year later. Dozens of oil companies went out of business, and the number of rigs in use fell from 800 to 350 in 2020 as tens of thousands of field workers lost their jobs.
Most of the new U.S. oil production is coming from the Permian Basin, which straddles Texas and New Mexico. There are also some new projects and expansions in Alaska and offshore in the Gulf of Mexico.
“It’s the mother of all comeback stories,” said Robert McNally, who was a senior energy adviser under President George W. Bush. “The last couple of years have shown that you should never bet against the U.S. oil sector.”
The bonanza has helped American consumers. This week the average price for a gallon of regular gasoline was $3.25 a gallon, 25 cents below what it cost a year earlier and nearly $1.80 below the record price set in June 2022, according to AAA.
The American oil industry is now dominated by hydraulic fracturing of shale, a process that splits hard rock with pressurized water and chemicals. Shale wells are highly productive for only a couple of years, so a decline in drilling brings a quick, sharp decline in output. Conversely, a rapid return of drilling ignites a spurt of production.
Technological advances have enabled producers to drill faster with new rigs designed for the shale fields of Texas, New Mexico, Colorado and North Dakota. Robotics and software improvements have cut costs, while lateral wells have been lengthened to expose more rock for fracture.
But price is what drives investment and production. After the Russian invasion of Ukraine, oil prices climbed past $100 a barrel.
The biggest companies like Exxon Mobil and Chevron decided not to significantly increase drilling, fearing a price collapse. Instead, the companies spent billions of dollars buying back shares and handing out dividends.
By late 2022, however, smaller public companies and hundreds of privately owned firms began ramping up operations. Many small companies were bought by larger firms, which also spurred more production.
“The independents were back close to prepandemic activity,” said Raoul LeBlanc, a vice president at S&P Global Commodity Insights. “And the privates just went crazy.”
Mr. LeBlanc said the investments made during the second half of last year were now bearing fruit. He predicted that American production could rise to 13.7 million barrels a day by the end of 2024, unless there is a deep recession and prices drop below $65 a barrel, around $10 lower than the current price.
“I am very surprised by how much we have produced this year,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major producer in the Permian Basin that is being acquired by Exxon Mobil. He predicted that the country could produce 15 million barrels a day in five years.
Production is also growing in Canada, Guyana, Brazil and Norway.
Mr. Sheffield said “the big question” is how Saudi Arabia might respond if production in the United States and other countries continues to rise.
As the leader of OPEC Plus, a group of 23 oil-producing countries, which together produce nearly half the world’s oil, Saudi Arabia could pressure its allies to maintain production levels, as it did in 2014, rather than cut them to push down prices and cripple the soaring American shale production. That decision set up years of price swings that soured many Wall Street investors on the oil industry.
Investors have recently grown more fond of oil and the stocks of Exxon, Chevron and other companies are up a lot over the last two years. But that could be changing. The price of oil has been falling recently and is down by more than 15 percent since the summer.
Mr. Sheffield said the drastic swings in energy prices was a main reason investors were wary of his industry. “The reason for the lack of investor interest is the volatility of our business,” he said. “Discipline is not out the window but we need to solve this volatility issue and I don’t know when we are going to solve it.”
Jim Tankersley contributed reporting from Dubai, United Arab Emirates.