A coalition of OPEC members and other petrostates agreed to reduce its collective production by 1.8 million barrels per day through next March, but surging North American crude production is threatening to effectively cancel out those cuts. As the FT reports, oil output in Canada’s oil sands is set to jump as projects funded well before the decline in crude prices come online over the next year and half:
A forecast released this month by the Canadian Association of Petroleum Producers sees the country’s output increasing by 270,000 barrels a day in 2017 and another 320,000 b/d next year. That combined two-year Canadian increase is equal to almost a third of Opec’s production cuts that it made with allies like Russia at the beginning of this year in an effort to raise prices.
Canada isn’t even the sharpest North American thorn in OPEC’s side, though. The United States has seen its own oil output jump 550,000 barrels per day since last November, when these petrostate cuts were first announced. American production has dipped slightly in recent weeks as producers have scaled production back slightly due to flagging oil prices, but the outlook for shale over the rest of the year is still quite strong.
Combined, Canadian and U.S. oil production is set to grow more than a million barrels per day next year, as compared to where these North American countries were when the petrostate cuts first went into place. That nullifies more than half of that petrostate production draw down.
And it’s important to note that, going forward, OPEC will be the victim of any success it manages with these cuts. If prices do start to rise—a very big if, given current market conditions—then shale producers will quickly be able to take advantage of the rebound by ramping up their own production.
This all adds up to a truth that the oil historian Daniel Yergin hit on last year: ““[t]he era of Opec as a decisive force in the world economy is over.” And while these petrostates are coming to terms with their decline in relevance, it’s North American producers that are emerging as the new dynamic force in the global oil market.