Rising U.S. Shale-Oil Output Threatens OPEC’s Production Pact

  • Date: 18/01/17

Output in Permian Basin poised to lead jump

The oil market got a stark reminder Tuesday that rising oil production in the U.S. could upend efforts by major producers to bring global supply and demand for crude back in to balance.

Just ahead of the settlement for oil futures prices CLG7, -1.54% on the New York Mercantile Exchange on Tuesday, the Energy Information Administration released a report on drilling productivity—forecasting a monthly rise of 41,000 barrels a day in February oil production to 4.748 million barrels a day.

“That is bearish for oil and a concern for [the Organization of the Petroleum Exporting Countries,” said James Williams, energy economist at WTRG Economics, pointing out that the volume of new oil per rig has climbed because of gains in efficiency.

“If maintained, the expected February production gain means production from the shale plays will be up at least a half million barrels per day by the end of the year,” said Williams.

Prices for February West Texas Intermediate crude lost the bulk of the day’s gain on Tuesday to settle with a modest 11-cent climb at $52.48 a barrel.

“Since rigs are higher now than in December and should continue to increase, that means a half million [barrel-per-day] gain in production by year-end is a conservative estimate,” Williams said.

“Most OPEC members expected this, but U.S. shale production will be the closest monitored data after OPEC’s own compliance with quotas,” he said.

OPEC reached an agreement back in late November to cut output by 1.2 million barrels a day to no more than 32.5 million barrels a day and other non-OPEC countries pledged cut production by nearly 600,000 barrels more.

Meanwhile, recent data from Baker Hughes BHI, +1.61% revealed that the number of active U.S. rigs drilling for oil, a proxy for oil activity, rose for 10 weeks in a row before edging down for the week ended Jan. 13. […]

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