On the back of Russia’s invasion of Ukraine, crude oil prices jumped above $100 a barrel, and the average cost of U.S. gasoline has surpassed $4 a gallon. Yet domestic oil production has barely budged over the past two years and remains stuck below 12 million barrels a day, 10% to 15% below the pre-pandemic high.

The total U.S. oil rig count has bounced back, but only to roughly 75% of the recent peak in March 2020. Major U.S. shale producers, particularly ones in the Permian Basin of Texas, have a break-even oil price close to $30 a barrel, so why isn’t American supply responding to price signals from the global market?

First and foremost, U.S. shale got a wake-up call about its business model in 2020. That’s when the combination of an OPEC+ oil-market-share battle and pandemic lockdowns briefly turned crude oil prices negative and decimated the energy sector, driving more than 100 North American oil and gas companies into bankruptcy by year end.

Read the full Wall Street Journal article.
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Paul Tice is an Adjunct Professor of Finance at NYU Stern.