Oversupply in the world crude market has been the fundamental cause behind the disastrous drop in oil prices worldwide over the past four years. No one has suffered as much as the OPEC nations and their allies, nevertheless, they have, in the past, been reluctant to drop production to allow prices to stabilize. A deal went into place late last year, however, and member states, together with 10 other allies led by Russia, finally agreed to cut production starting 2017. Cuts of 1.8 million barrels a day (to peak 2016 production levels) were predicted.
An Extended Deal
In May 2017, the deal was extended. OPEC and its allies decided to extend conservative production levels all the way to March 2018. Many experts believe that the cuts will extend even further. Iraq has been in favor of even deeper drops in level (even if compliance has been poor).
Iraq hasn’t been alone. Signatories to the agreement have clandestinely raised production at various times. Yet there have been improvements. Compliance has risen to 94 percent or higher, countries such as Saudi Arabia have made deeper cuts that they were required to, as well. Total output dropped to 32.755 mbd a day, a drop of nearly 80,000 bpd.
Encouraging Effects
The results have been as foreseen. Coupled with healthy rises in demand for gasoline and diesel worldwide, production cuts have resulted in a 20 percent bump in price levels (over low points observed in June). With the IEA releasing estimates of some of the highest rates of increase in global oil demand since 2015, the industry is beginning to see greater levels of confidence worldwide.
How It Affects U.S. Drillers
It’s important to remember OPEC is only responsible for 40 percent of the world’s oil production. The rest comes from a number of other countries, the U.S. included. America is not a signatory to the deal, and it is not required to cut production.
American drillers have taken advantage of the healthier pricing environment. It has been evident in activity seen in the domestic industry, according to Sigma Drilling Technologies, a leading designer and manufacturer of critical drilling components. The dampener manufacturer has seen a bump in interest in its dampener solutions and other high-tech products.
With the outlook improving for drillers for the first time in a while, the year 2017 appears set for better performance than at any other time in recent memory. To learn more about Sigma’s solutions for drilling contractors, call (281) 656-9298.
