Very Soon. US Could Overtake Saudi Arabia in Oil Production

Andrew Cummings
January 22, 2018

While benchmark Brent crude has gained 2.6 percent this month, United States oil output is set for strong growth this year as prices rally, the International Energy Agency said on Friday.

Oil "demand expectations are strong with the growing global economy, and the OPEC deal continues to have a positive effect on sentiment", and "technically speaking, the trend remains bullish [for oil] as futures are sitting just under multiyear highs", said analysts at the Sevens Report.

The exact mechanism for cooperation next year has not yet been decided, Falih said, but if oil inventories increase in 2018 as some in the market expect, producers might have to consider rolling the supply cut deal into next year.

Market tightening in the final months of 2017 was evident and continued into 2018.

The report projected that by 2020, the United States was set to become the largest global oil producer (overtaking Saudi Arabia until the mid-2020s), and resulting in a continued fall in USA oil imports, to the extent that North America would become a net oil exporter around 2030. A lot of them are locking in their future production at these price levels.

The next meeting for the monitoring committee, with Saudi Arabia and Russian Federation as co-chairs, is January 21 in Oman.

"As we approach the re-balancing by the end of 2018, we need to extend the framework but not necessarily in the production levels", Al-Falih said.

Oman's oil minister Mohammed bin Hamad al-Rumhi said producers would discuss in November whether to renew their supply agreement or enter a new type of agreement.

"Additionally, global crude oil markets saw an exceptionally tight fourth quarter in 2017 as the large draw in OECD crude stocks coincided with a decline in Chinese implied crude balances".

"Shale producers in the U.S. have managed to lower their breakeven costs by 30-50 per cent in 2015-17, by improving technology and efficiency and as oil field service providers offered deep discounts on rigs and crews to retain their share of a shrinking market".

He said that balance may not happen until early 2019, the first time he has pushed the time frame beyond 2018.

UBS believes global oil production will increase by 1.9 million barrels a day this year, up from growth of 400,000 barrels a day in 2017, while demand grows at 1.4 million barrels, down from 1.6 million barrels last year. The ultimate goal of the group's output cuts is to bring commercial stockpile levels for Organization for Economic Co-operation and Development countries back to their five-year average.

"I don't think that we are going to reach our target anytime soon, certainly not in the first half", he told reporters before Sunday's meeting.

But there could be one in the works.

Hydraulic fracking in the nation's shale oil reserves have caused a 10 percent increase in oil production since September. With the extension of the OPEC production cuts until the end of this year, the market anticipates a further rise in the U.S. output in the coming months.

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