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Crude Economics
OPEC Sees the Writing on the Wall

The oil cartel roped eleven other petrostates into an agreement to curtail production in 2017 and are currently working on extending that deal, but the output cut’s ultimate goal of eating away at the oil market’s glut of crude is being undermined by the actions of suppliers outside of OPEC—U.S. shale producers chief among them. Now, OPEC is revising upwards its estimates of how quickly supplies will grow outside of its membership this year by a whopping 64 percent. Bloomberg reports:

Production from outside the Organization of Petroleum Exporting Countries will increase by 950,000 barrels a day this year, OPEC said in a report, revising its forecast up by about 370,000. The projection is four times higher than in November, when the group announced a production cut to try and re-balance oversupplied world markets. Non-OPEC nations pump about 60 percent of the world’s oil. […]

“U.S. oil and gas companies have already stepped up activities in 2017 as they start to increase their spending amid a recovery in oil prices,” OPEC’s Vienna-based research department said in the report. “In addition to the growth in the U.S., higher oil production is expected in Canada and Brazil.”

This supply-side surprise comes courtesy of American frackers, who have seized the opportunity afforded them by the petrostate cuts and have ramped up their own production over the past nine months. By cutting costs and boosting efficiencies, U.S. shale has made itself capable of profitably producing $50 per barrel oil.

This is the worst-case scenario for OPEC: whatever success its production limits have in inducing a price rebound, the fruits of those labors will be enjoyed first and foremost by U.S. companies who will find more of their shale operations profitable at higher prices. With projections for growth of non-OPEC supplies being ramped up so dramatically through the end of the year, it’s clear to see that that’s already happening.

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  • JJS_FLA

    “Drill, Baby, Drill!” Who doubts that Liberals would be praising Sarah Palin as a prescient feminist hero — if only she had aborted her beloved baby?

  • I recall back in the ’80s those experimenting with the shales and sands said they could break even at $14. The thought was they had to stay well above that, otherwise the enterprises with their vast sunk costs would collapse. Of course the individual producers have been birthed and died scores of times but the stuff keeps coming. Google says that $14 is about $64 if inflation adjusted. Looks like they’ve squeezed their expenses quite a bit.

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