OPEC Meeting Discussing Production Cuts- 98th Issue
Thanks to the shale revolution, U.S. production is up and costs have dropped significantly. Yet, OPEC is trying to increase prices by cutting its production.
First shale oil and now offshore deep-water oil are reducing their costs of production, making it more difficult for OPEC’s policies to have the intended effect. Shale oil production costs have come down significantly over the past several years, making its production profitable at below $40 a barrel.
Now, deep-water oil production is expected to bring down its costs to between $40 and $50 per barrel by early next year from an average break-even price of about $62 in the first quarter of this year and $75 in 2014. OPEC expects to keep oil prices between $50 and $60 a barrel by extending its production cuts for another nine months—keeping roughly 2 percent of global oil production off the market to increase prices.
Where is this going…As U.S. oil production increased in recent years, OPEC oil got edged out of the lucrative American oil market. America imported about 60 percent of its oil in 2007, but by 2014, the U.S. only imported 27 percent of its oil, according to government data. And now in 2016, net U.S. oil imported droped to 25% of its oil. The rising U.S. oil production reduced demand for Saudi oil abroad, too, keeping prices low.
The Organization of the Petroleum Exporting Countries lost $76 billion in 2016 due to low oil prices caused by rising U.S. oil production, according to a report published May 15th by the U.S. Energy Information Administration.
In summary…Every U.S. President, since the 1973 Arab Oil Embargo has calling for U.S. energy independence. Now the Frackers have accomplished just that by finding a way to be profitable in these low energy prices. God bless the Frackers.
Source: Tom Stepstone, “OPEC Cuts Production in Losing War with Fracking,” OIlPro, June 8, 2017; Andrew Follett, “OPEC Lost $76 Billion Last Year Due to US Fracking,” The Daily Signal, 16 May 2017