OPEC has been promising curbs on production by member states for months, but compliance has been shaky. Lately, however, these states have been enthusiastic, finally seeing how lower levels of supply are likely to stabilize prices. With compliance rising to over 100% and with unplanned declines showing up on top, OPEC’s output dropped by a third of a million barrels per day during the month of November. Other than Ecuador, UAE and the African nation of Gabon, every OPEC country has been in compliance.
These cuts have been working as intended. Global inventories have been falling so impressively and demand has risen so robustly, oil has been trading at a two-year high. Production cuts by OPEC will continue to the end of November 2018, which is a year-long run for improved stronger prices.
More on the OPEC Production Cuts
It may be hard to truly gain confidence from the compliance demonstrated by member states of the OPEC group without a breakdown of the way individual countries performed.
In some cases, compliance was unplanned. Algeria and Angola underwent lower production levels because of oilfield maintenance projects that saw more than 100,000 bpd of production lost. At Libya’s Wintershall oilfield, political protests put paid to 30,000 barrels a day. Venezuela’s oil industry has been so starved for funding that they haven’t been able to afford to produce oil.
Iraq, a country that has lagged in compliance, saw its production fall simply because the Kurdish population in control of the North lost their oilfields for the first time, in their struggle against Iraqi forces. Saudi Arabia, however, trimmed production to remain in compliance, as did Nigeria.
Encouraging News for Local Shale Producers
OPEC’s production target for 2017 was 32.5 million bpd, a mark that has been nearly reached. With compliance so high, there is no reason that American prices will not maintain their steady run into the $60 range. According to Sigma Drilling Technologies, a U.S. dampener manufacturer, local drillers have not been slow to grasp the potential of these developments, investing heavily in pulsation control systems and other oilfield equipment in order to boost production, and take advantage of strong price levels.
Positive sentiment looks set to rule the oil industry in the new year.
