While Saudi Arabia and other major oil exporters aim to boost global oil prices through production cuts, their control over oil prices appears to be waning. The other major force in the global oil market, U.S. oil, is on track to break new production records.
On July 7, the latest data from the U.S. Energy Department showed that U.S. crude production has increased by 9% as of April this year compared to the same period last year. This unexpected rise occurred despite a drop in oil futures prices and signs of a peak in the U.S. shale oil boom.
One of the reasons for the surge in U.S. crude production is an improvement in production efficiency. According to The Wall Street Journal, Vikas Dwivedi, a global oil and gas strategist at Macquarie Group, stated that after the oil price plummeted in 2015, U.S. oil producers significantly increased efficiency, not only reaping significant engineering-based benefits but also slashing a substantial number of employees and costs.
On July 3, Saudi Arabia's Ministry of Energy announced that it will extend its voluntary cut of 1 million barrels per day in July to August and may further extend this. On the same day, Russian Deputy Prime Minister Novak stated that the deadline for voluntarily reducing production by 500,000 barrels would also be extended until the end of next month.
These announcements mean that, so far this year, the production cuts declared by OPEC and its allies amount to about 6% of last year's output. Despite this, crude oil prices have still dropped by about 13% this year. This suggests that as oil production in other regions continues to grow, OPEC's ability to price oil may be weakening.
Increases in oil production in other countries, such as Brazil, Canada, and Norway, have also driven prices down. Rystad Energy estimates that production growth in countries outside of OPEC roughly offsets two-thirds of the cartel's production cuts.
Half of this additional crude oil comes from the U.S., including oil produced by major producers such as ConocoPhillips, Devon Energy, Pioneer Energy, and EOG in the first quarter. Smaller private companies are reaping the rewards of the surge in drilling when oil prices were higher last year.
The increase in efficiency by U.S. oil producers has created larger profit margins for them, allowing them to remain profitable even when oil prices fall. Data from JPMorgan shows that since 2014, the increase in U.S. shale oil production has reduced drilling and hydraulic fracturing costs by 36%.
ConocoPhillips said it plans to drill 14% more oil wells this year than last year. Another major producer, EOG Resources, said earlier this year it drilled a well in southern Texas that was more than 5 miles deep and nearly 3 miles long, setting a new company record.
EOG Resources added that its increased efficiency means that even if oil prices now drop to only $42 per barrel, EOG's profit would be the same as it was nine years ago when oil was $86 per barrel.
Both ExxonMobil and Chevron are striving to significantly increase their production in the Permian Basin over the next few years-a key oil-producing area spanning West Texas and southeastern New Mexico. ExxonMobil CEO Darren Woods said at a meeting last month that the oil extraction industry has only recovered about 10% of the theoretically available oil.
Woods is challenging the company's engineers to double this ratio.
