The world’s major oil producers on Thursday agreed to keep a lid on production for another year as they attempt to deplete bloated stockpiles in the face of rising output from U.S. rivals.
The decision by OPEC, led by Saudi Arabia, and more than two dozen other countries, including Russia, to extend a supply cut of 1.8 million barrels a day was a long-anticipated move that sent oil prices up only slightly on Thursday after weeks of gains.
“That will bring more U.S. producers back into the money,” said Ed Hirs, an energy economist at the University of Houston. “Houston’s economy will be level or better.”
Analysts have warned a drilling surge in the United States could offset efforts to curb global supply by the Organization of the Petroleum Exporting Countries. But the group’s officials sounded optimistic about the oil market on Thursday, saying that so far the growth of U.S. shale output has been manageable this year, because, after years of underinvestment, oil basins around the world are in decline, and global demand continues to rise at a brisk pace of 1.4 million barrels a day.
“We don’t believe shale can nearly carry that load,” Khalid Al-Falih, Saudi Arabia’s energy minister, said at a gathering of OPEC and non-OPEC nations in Vienna on Thursday.
U.S. oil prices reached their highest level in more than two years last week, climbing near $59 a barrel, but have since edged lower. They settled Thursday at $57.40 a barrel on Thursday. If oil prices stay in $60 a barrel range, Houston could add nearly 70,000 jobs next year, according to an economic forecast by Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston.
The agreement reached in Vienna marks the second time that OPEC has extended the production cuts since adopting them a year ago. Progress in draining the worldwide petroleum glut that spurred the recent oil bust has come slowly, but OPEC has succeeded in whittling global stockpiles by about two-thirds. Prices also have responded slowly, up about $10 a barrel over the past year.
For the first time, two key OPEC producers – Libya and Nigeria – agreed to join the coalition in capping production at current levels, after lifting output this year. The two countries were previously exempt from OPEC’s cuts as they recovered from internal conflicts that suppressed output. Over the past year, Libya’s oil production has climbed 48 percent and Nigeria’s has risen 6 percent to a combined 2.7 million barrels a day in October
In addition, six more countries lined up to endorse OPEC’s agreement this week, bringing the number of countries that back the agreement to 30.
Falih said oil inventories in developed nations will have to drop by at least another 150 million barrels below current levels before supply and demand comes into balance across global markets.
Meanwhile, U.S. oil production continues to rise. The Energy Department on Thursday said the nation’s oil output climbed by nearly 300,000 barrels a day in September, up 3.2 percent to 9.48 million barrels a day. Drillers in Texas, rebounding from the crippling effects of Hurricane Harvey, boosted output in September to 3.57 million barrels a day, up 5.7 percent.
U.S. production peaked in 2015 at 9.62 million barrels a day, its highest level in four decades, after American drillers tapped into once-inaccessible shale rocks containing vast amounts of oil and gas. The Energy Department expects it to climb to more than 10 million barrels a day by the end of next year, beating the all-time record set in the 1970s.
In the third quarter, major U.S. oil companies locked in higher prices through long-term contracts for more than twice the number of barrels they did in the previous three months – meaning they will almost certainly pump more oil next year,according to a recent study by energy research firm Wood Mackenzie. And the number of working U.S. oil-drilling rigs has increased by 18 to 747 since early November.
OPEC said it will continue to monitor the oil market, but does not expect the anticipated increase in U.S. shale production to throw off the rebalancing of the oil market. Falih said shale oil fields cannot pump enough oil to replace the production lost to natural declines in older fields around the world.
“Yes, there’s going to be more drilling and perhaps more completions, but then you have higher declines,” Falih said. “The 2018 outlook is very bullish, if I can use that word.”
SOURCE: Houston Chronicle
Compiled and Published by GIB KNIGHT
Gib Knight is a private oil and gas investor and consultant, providing clients advanced analytics and building innovative visual business intelligence solutions to visualize the results, across a broad spectrum of regulatory filings and production data in Oklahoma and Texas. He is the founder of OklahomaMinerals.com, an online resource designed for mineral owners in Oklahoma.