Historically, U.S. Oil Stocks Still Managed to Hit New Highs Even When Oil Prices Are Falling. Why?
A counterintuitive situation is that in the years following the 2022 oil price surge in the U.S., oil prices have been generally falling from 2023 to 2025, yet $Exxon Mobil(XOM)$
These factors can be summarized as:
1. Increasing concentration of global oil supply. Due to geopolitical factors, Russia and Iran, two major oil-producing countries, have been excluded from the mainstream oil trading system, gradually constraining their oil production and export capabilities, thus affecting the global energy supply landscape. Previously, the 2003 Iraq War and the 2011 Libya War also led to a gradual shift from dispersed to concentrated global oil supply patterns.
2. Long-term efficiency improvements in U.S. shale oil extraction; increased shale oil output per drilling platform. This is because U.S. shale oil technology has begun to develop ultra-long horizontal wells in recent years, capable of horizontal extraction over 3km. According to the EIA (Energy Information Administration), the number of drilling rigs across the U.S. has decreased, but production is hitting new highs.
3. The U.S. Permian Basin is the lowest-cost shale oil production area. The increasing proportion of Permian Basin production has led to cost reductions for companies operating there in recent years.
4. Industry mergers and acquisitions in the U.S. have also led to increased domestic concentration. In 2023, industry changes such as ExxonMobil's acquisition of Pioneer Natural Resources and Chevron's acquisition of Hess Energy have increased the CR5 (Concentration Ratio 5) in the Permian Basin from 30% to 55%. Economies of scale help reduce costs and maintain industry discipline.
The combined effect of these factors at the company level is that there are numerous companies that have increased dividends for over thirty consecutive years.
In addition, the midstream pipeline industry can avoid oil price fluctuations, providing more predictable revenue performance. Representative companies include $MPLX LP (MPLX.US)$ , $ONEOK Inc (OKE.US)$ , and $Williams (WMB.US)$ . Currently, the Permian Basin transport capacity is 20 billion cubic feet per day. By 2028, it will increase to 30 billion cubic feet to meet growing production demands. These companies will share the majority of new pipeline additions, providing relatively certain visibility.
Beyond industry factors, at the company level, energy companies have stricter financial discipline. $Exxon Mobil (XOM.US)$ and $Chevron (CVX.US)$ have increased dividends for over 30 consecutive years. Dividend payout ratios and dividend yields are maintained at high levels.
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