By Urvashi Verma

After nearly two and a half years of barren fields, U.S. shale producers are restoring operations as oil prices have rebounded from increased demand from Asia and OPEC production cuts.

The Brent and WTI crude oil prices have increased 13.0 and 9.4 percent respectively reaching above the $50 per barrel mark since November after the Organization of Petroleum Exporting Countries made a historic move to cut production by nearly 1.2 million barrels per day.

Less than two months later, shale oil output is rising as higher prices have made it more profitable for U.S. producers to restart operations.

In the first week of January alone, oil output jumped by 176,000 barrels per day to 8.95 million barrels per day from 8.77 million, according to the U.S. Energy Information Administration’s Short-Term Energy Outlook.

This week Exxon Mobil Corp. announced it intends to invest $5.3 billion in shale-oil assets in the Permian Basin, which would give Exxon access to nearly 275,000 acres amounting to 3.4 billion barrels of oil and gas, a substantial increase in the company’s shale footprint.

“This is a more responsive supply market than in the past,” said Sam Ori, executive director of the Energy Policy Institute at the University of Chicago in an interview. U.S. shale companies are able to extract oil in just six to nine months, while offshore drilling needs nearly three years to produce oil, said Ori.

Since last May the U.S. oil rig count has increased to 522 from 316, a 61 percent rise, according to data from Baker Hughes. Moreover, 104 oil rigs have been added since September. Most since the first-quarter of 2014, when oil prices were trading above $100 per barrel. This year U.S. rigs are expected to increase by 29 percent, according to Platts Rigdata Forecasts.

Baker Hughes rig counts are a weekly census of the number of drilling rigs actively exploring for or developing oil or natural gas in the United States. Rig counts are considered a direct indication of oil production operations.

This year spending on U.S. onshore projects, most often shale, is likely to grow 23 percent to $61 billion, according to Wood Mackenzie Ltd. the global energy research group.

“Companies are reporting adding rigs. We are nowhere near the peak, but certainly more rigs are an indication of increased shale production as price robustness continues,” said David Meats, analyst at Morningstar, in a phone interview.

Crude oil prices plummeted to $26.21 per barrel in February of 2016 from $108 at the June 2014 peak. The severe drop amounted to an estimated $67 billion in combined losses for the top 40 publicly traded U.S. oil producers in 2015, according to the EIA.

An estimated 195,000 jobs were cut as oil companies nearly halted all exploration and drilling operations, reported Challenger, Gray & Christmas Ltd., a labor and employment firm, as oil companies nearly halted all exploration and drilling operations.

These losses paralyzed U.S. oil producers and shut them out of the oil production market which led to huge losses for U.S. companies in global crude oil market share, said Phil Flynn, an energy analyst at PRICE Futures Group, in an interview.

However, increased demand and coupled with recent production cuts by OPEC have catapulted oil prices to above $50 per barrel, making it profitable for U.S. producers to restart operations, noted Flynn.

“The dynamics have changed; there is going to be a battle for market share,” Flynn said.

Adding to the rebound of shale oil production have been advancements in the drilling technology and cost savings from reduced margins in fees charged by oil field servicing companies.

“The race has changed from a race for land to a race for efficiency,” stated Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones, in a press release. “U.S. shale companies have also learned to operate more efficiently.”

New techniques like down-spacing, drilling wells closer together to fit more wells in a single plot of land, and the use of high-density sand in fracking, has allowed oil producers to get more oil out in less time, according to the EIA. Cost savings have also come from reduced margins and fees by oil servicing companies, the EIA reported.

Last week, the EIA upwardly revised its 2017 projection for U.S. oil production, predicting output will grow by 110,000 barrels per day instead of declining by 80,000 barrels per day, which was the previous month’s forecast.

At the same time, the number of commercial barrels of oil in storage has ballooned by nearly 15 percent to 2.9 billion barrels from 2.5 billion, its highest level in the past five years, according to EIA data.

Analysts remain cautious about future price gains because of the overhang of inventory and the increased output of U.S. producers, which can dampen growth and cause prices to decline.

“It is difficult to predict exactly where the price will go,” said Meats, of Morningstar. “There is definitely a balance game between supply and demand. If either the U.S. or OPEC produces too much, prices may go back down, making it tough for U.S. producers to stay in the market, and OPEC and doesn’t want lower prices either.”

OPEC production cuts may have helped propel prices higher, but that doesn’t necessarily mean that they are the primary driver for increased U.S. shale production, the International Energy Agency stated to Bloomberg.

Arguing against a long-term retreat in oil prices, some analysts point to increasing demand for crude oil, expected to grow by 25 percent this year compared with last year, according to the EIA.

In the Asia-Pacific region oil demand is expected to grow by 800,000 to 900,000 barrels per day this year and next, while production from the region actually could shrink by as much as 330,000 barrels per day over the same period, according to Matt Smith, director of commodity research at ClipperData’s blog, citing International Energy Agency data.

“Global demand for oil is steadily increasing in energy poor countries like India where industrial and population growth both will continue to increase demand,” said Flynn. “We are likely to see crude oil prices and U.S. oil production push higher in the long-term.”