OPEC in shock as U.S. oil production soars

Kramer Phillips By Kramer Phillips | 4 years ago

Consumers can expect low gasprices to stay with us for a while. World oil prices are lower today than they were at the start of the year, and U.S. oil production is driving the trend, according to analysts who note that U.S. oil producers have been raising their output by 100,000 barrels a month since January and are on track to be producing 9.9 billion barrels a day by the end of the year. OPEC, meanwhile, announced Thursday that a 1.8 million barrel-per-day production cut it had instituted back in December will continue until the second quarter of 2018.

The United States is now producing one million barrels daily, which already puts it ahead of more than half of OPEC’s member nations. The expansion of hydraulic fracturing and shale-oil production are facilitating the U.S. ramp-up; these methods enable the extraction of oil deposits that are too deep underground to be easily attainable by conventional drilling.

Drilling technology improvements are also a factor. Bernstein Research reports that recent innovations in drilling have brought the cost of a barrel down to $63—it was more than $100 only a few years ago. And producers are getting more oil per drilling site, according to Ed Westlake of Credit Suisse, who told Forbes that major U.S.-based producers have boosted their oil-recovery rate by 30% from just a year ago.

This growth trend marks a major turnaround for an industry that was hampered by 123 bankruptcies and $80 billion in bad debt several years prior. It also signifies a shock to world oil markets, as OPEC’s member hope that the continuation of production cuts might slow the price drops.

“We will be very gentle in our approach so we do not shock the market,” said Saudi minister Khalid al-Falih on Thursday in reference to the extended production cut.