WASHINGTON: The drastic cut in oil production by the Organization of the Petroleum Exporting Countries (OPEC) and its allies may lead to higher demand for US oil in Europe and Asia.
The slash in production may also encourage other producers to increase output, industry executives and analysts told Reuters.
On Sunday, OPEC+ announced to cut production next month by almost 1.16 million barrels per day (bpd). After the announcement, oil prices jumped over 6 per cent on Monday, with US crude futures trading at $80 per barrel.
Analysts said the OPEC+ oil cut would leave markets short by almost 2.3 million bpd in the second half of 2023.
Rystad Energy, senior vice president at market researcher Hagerty Jorge Leon, said that they could see an additional 200,000 bpd by the end of the current year” from US producers. He said that new production was likely to be exported to Europe.
According to the latest government data, the US pumped nearly 12.5 million bpd in the market in January. Production in the largest US shale basin would grow by 400,000 barrels daily this year, according to energy tech firm Enverus.
Publicly traded firms probably would hold output levels even with crude futures above $80 per barrel. Still, private companies would be incentivised to boost activity, said Tall City Exploration chief executive Mike Oestmann.
He said that that made the new investment a little more attractive.
US IN SPOTLIGHT
The OPEC+ cuts is expected to raise demand for US medium and sour crudes as Middle Eastern sour crudes was expected to become more expensive, market participants said. US cash crude prices bolstered on Monday, with Mars Sour recording 50 cents to trade at a $1.40 discount to US crude futures.
Asia and Europe had already been demanding more US crude after Russia’s invasion of Ukraine reshuffled oil flows. US seaborne crude exports last month hit 4.74 million bpd, the highest monthly total since January 2020, Vortexa data said.
Senior oil market analyst at Vortexa Rohit Rathod said that this development should bode well for already strong US crude exports with increased medium- and heavy-sour Canadian crude exports from the US to supply a global market already short on sour crude.
