When the oil glut sent prices tumbling in 2014, Russia and OPEC member-states such as Saudi Arabia agreed voluntarily to putting a production ceiling in place. The less production there was, the less they would supply the worldwide glut, and the quicker the recovery would be from disastrous oversupply that brought prices down to the $30 range.
Low oil prices meant that countries that were dependent on oil revenues suffered greatly, there was the constant instinct to exceed production ceilings surreptitiously in order to bring in more revenue. Violations of the pact have happened more or less continuously.
Lately, however, these countries are beginning to weary of the effects. They are beginning to see the truth of an important reality of oil economics: there’s only so much that raising production can do to raise revenue in an environment of depressed prices. Working to raise prices makes more sense than working to raise production.
Production Ceiling Is Likely to Last Longer
These self-imposed limits are working, while prices are still at 50% of the levels seen in 2014, the commodity now trades in a lastingly bullish environment.
With the current agreement by OPEC, Russia and other oil-producing countries set to run out in March 2018, lack of visible measures to extend the agreement has caused some anxiety among drillers. Yet Russian President Putin has sent out signals of a willingness to engage in a strategy to lift prices up – signals that include the possibility of an extension to the pact to see it through to the end of 2018. His statement, however, indicates that such an extension won’t come until the current pact expires.
The Plan Is Working
Global prices of Brent crude will likely remain at $60 at the end of the year 2017. The production ceiling put in place by Russia and OPEC members is responsible for it in no small measure.
American drillers have made hay with these levels, and may raise production by one million barrels per day by this time next year. Other non-OPEC oil producers could contribute a further half-million barrels per day.
Focusing on the Future
Betting on the world’s hunger for energy is usually a sound move, this is especially true today. With the world’s largest oil producers showing every sign of keeping production down, American drillers have an opening. According to Sigma Drilling Technologies, manufacturer of innovative pulsation dampeners, pulsation control systems and other components critical to high-efficiency drilling operations, U.S. drillers are beginning to invest, ramping up capacity and maintenance in order to meet demand when prices turn high and firm.
To learn more about improving drilling efficiency now, contact Sigma at (281) 656-9298 to schedule a free demonstration.
