US oil producers join Russia and the Saudis

US, WASHINGTON (ORDO NEWS) — US oil companies have reduced production to a much greater extent than it seems. They reacted more actively to market forces than official figures suggest, which means that the United States is actually working with Saudi Arabia, Russia and other major oil producers to help balance the supply and demand of oil – although this is completely contrary to the intentions of President Donald Trump.

According to data provided by the US Energy Information Administration, crude oil production today is about 11.6 million barrels per day. This is 1.2 million and 1.4 million barrels per day – or approximately 10% – below the level of the plateau reached over the past winter (depending on whether the data is used – weekly or monthly).

Shale Boom End 2.0

To really evaluate these data on US oil production, we recall that last month, members of the Organization of Petroleum Exporting Countries (OPEC) and their allies agreed that each of them will reduce its production by 22% from the baseline, which for the most part corresponds to October levels 2018 year. Initial data derived from tanker tracking data, which Bloomberg experts are studying, suggests that some of these countries, such as Saudi Arabia, are taking active and serious steps to achieve this. And other countries, such as Iraq, are lagging behind. But all the major OPEC member producers, including Iraq, have raised their prices and cut crude oil supplies to key consumers by June, which indicates that the degree to which the agreement will be fulfilled will increase.

For comparison, it should be noted that according to official figures, the United States reduced production in much smaller volumes. But in this data on a decrease in production in the United States, the volumes of production reduction that American oil companies were forced to go down are probably underestimated. And the understatement of these volumes is very significant.

The volumes of oil entering the supply system must correspond to the volumes coming from it. This is simple arithmetic.

But if the weekly data provided by the Energy Information Administration add up the volumes of production, imports and volumes of crude oil taken from oil storage facilities (part of the equation corresponding to the proposal), the sum will not be equal to the sum of the volumes of oil available at oil refineries and the oil used exported or placed in oil storage facilities (part of the equation corresponding to demand). The Energy Information Administration recognizes this difference by publishing a correction factor, and in absolute terms this number really becomes very large.

Overpriced production data?

In the data for the week before May 8, the correction factor was 914 thousand barrels per day. This is the most negative point. Simply put, in the data provided by the Energy Information Administration last week, the supply of crude oil is either overstated by 914 thousand barrels per day, or the demand is underestimated, or both.

The volumes of crude oil imported into and exported from the country are confirmed by documents. The same applies to the volume of oil entering and from oil storage facilities, as well as to refineries. Therefore, the most likely cause of discrepancies is data on production volumes.

While the correction factor does reflect overestimation of crude oil production data, US oil companies may produce only 10.6 million barrels per day. This means a reduction in production of almost 2.4 million barrels per day, or 18%, which is much more consistent with production cuts agreed by OPEC countries and its allies.

Reduced drilling activity

There is plenty of circumstantial evidence that the US produces less oil. Currently, there are fewer oil rigs in the US than even during a sharp drop in production in 2016, when the first shale boom ended due to a collapse in oil prices. On May 1, Facts Global Energy, a consulting company, published an analytical note stating that company earnings reports indicate a possible decline in US production by the end of June by three million barrels per day. Apparently, we are confidently approaching this indicator.

Even though President Trump seeks to protect the American oil industry and, in order to maintain prices, is trying in every way to persuade other countries to cut production, conditions in the oil market seem to make everyone feel the effects of the oil crisis. But these more significant production reductions, although forced, help to quickly restore the balance of global supply and demand and create a more solid foundation for the start of recovery in oil production.


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