opec boosting production to keep pressure on u.s. shale# Stock
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Saudi Arabia has decided to turn up the heat on U.S. shale producers.
The de factor OPEC leader ramped up oil production in March despite the fact
that it is pumping into one of the worst bear markets in years. A new
report from the International Energy Agency found that OPEC increased oil
production by an estimated 890,000 barrels per day (bbl/d) in the month of
March.
Iraq managed to boost output by 350,000 bbl/d and Libya also brought about
190,000 bbl/d back online.
Related: Top 12 Media Myths On Oil Prices
But Saudi Arabia made up the difference, increasing output by an additional
390,000 bbl/d to 10.1 million bbl/d, a near record-high. The move to
increase oil production in the face of a well-supplied market is likely a
strategy to maintain market share and force higher cost producers – such as
U.S. shale – out of the market.
And there is growing evidence that Saudi Arabia’s strategy is bearing fruit
. U.S. rig counts have fallen below 1,000 for the first time since 2009. Rig
count declines in the U.S. appeared to be slowing after several weeks of
only a dozen or so rigs being taken off the market, but last week an
additional 40 oil and gas rigs were removed, indicating that additional cut
backs are in the works.
Related: The Real Cost Of Cheap Oil
More importantly, the EIA now says that U.S. oil production will decline in
May by 57,000 bbl/d, with cut backs coming from the Bakken, Eagle Ford, and
the Niobrara Shales. Since more rigs will be removed from the shale patch in
the weeks ahead, larger declines in total U.S. oil production can be
expected for much of this year.
View photo
.MonthlyChangeChart
Related: How Much Water Does The Energy Sector Use?
Saudi Arabia is keeping the pedal to the metal. It is actually increasing
rig counts in order to keep production going full tilt. That means that oil
prices could remain subdued for quite a bit longer. The painful adjustment
will have to come on the shoulders of U.S. drillers. As the IEA notes in its
report, “a faster-than-expected decline in North American unconventional
supply” will lead to a “faster recovery” in oil prices.
Still, oil prices increased after the IEA report. Despite the flood of OPEC
oil – which has surpassed its official quota – oil demand is set to pick
up as consumers respond to lower prices. The IEA revised upwards its demand
picture for 2015 by an additional 90,000 bbl/d, projecting an overall
increase of about 1.1 million bbl/d over 2014.
By Charles Kennedy for Oilprice.com
Saudi Arabia has decided to turn up the heat on U.S. shale producers.
The de factor OPEC leader ramped up oil production in March despite the fact
that it is pumping into one of the worst bear markets in years. A new
report from the International Energy Agency found that OPEC increased oil
production by an estimated 890,000 barrels per day (bbl/d) in the month of
March.
Iraq managed to boost output by 350,000 bbl/d and Libya also brought about
190,000 bbl/d back online.
Related: Top 12 Media Myths On Oil Prices
But Saudi Arabia made up the difference, increasing output by an additional
390,000 bbl/d to 10.1 million bbl/d, a near record-high. The move to
increase oil production in the face of a well-supplied market is likely a
strategy to maintain market share and force higher cost producers – such as
U.S. shale – out of the market.
And there is growing evidence that Saudi Arabia’s strategy is bearing fruit
. U.S. rig counts have fallen below 1,000 for the first time since 2009. Rig
count declines in the U.S. appeared to be slowing after several weeks of
only a dozen or so rigs being taken off the market, but last week an
additional 40 oil and gas rigs were removed, indicating that additional cut
backs are in the works.
Related: The Real Cost Of Cheap Oil
More importantly, the EIA now says that U.S. oil production will decline in
May by 57,000 bbl/d, with cut backs coming from the Bakken, Eagle Ford, and
the Niobrara Shales. Since more rigs will be removed from the shale patch in
the weeks ahead, larger declines in total U.S. oil production can be
expected for much of this year.
View photo
.MonthlyChangeChart
Related: How Much Water Does The Energy Sector Use?
Saudi Arabia is keeping the pedal to the metal. It is actually increasing
rig counts in order to keep production going full tilt. That means that oil
prices could remain subdued for quite a bit longer. The painful adjustment
will have to come on the shoulders of U.S. drillers. As the IEA notes in its
report, “a faster-than-expected decline in North American unconventional
supply” will lead to a “faster recovery” in oil prices.
Still, oil prices increased after the IEA report. Despite the flood of OPEC
oil – which has surpassed its official quota – oil demand is set to pick
up as consumers respond to lower prices. The IEA revised upwards its demand
picture for 2015 by an additional 90,000 bbl/d, projecting an overall
increase of about 1.1 million bbl/d over 2014.
By Charles Kennedy for Oilprice.com