With Saudi Arabia and Russia continuing their production cuts and Middle Eastern geopolitical conflicts casting uncertainty over global oil supply, the U.S., a major oil producer, has spotted an opportunity.
Data from the U.S. Energy Information Administration (EIA) reveals that the average U.S. oil production over the past four weeks has surged to 13.2 million barrels per day, marking the highest level since 1983.
Additionally, figures from oil drilling company Baker Hughes indicate that the number of active rigs in the U.S. has increased for two consecutive weeks, reaching 502 as of October 20.
These statistics suggest that the U.S. is ramping up its oil production, positioning itself to capture a larger market share during OPEC's production cut phase.
EIA data also highlights that U.S. crude oil exports reached a new peak in the first half of 2023. Europe remains the largest recipient of U.S. crude oil exports, with 1.75 million barrels per day, primarily destined for the Netherlands and the UK. Asia follows closely, receiving exports of 1.68 million barrels per day.
Market Analyst Insights
Alex Kuptsikevich, a senior market analyst at FxPro, recently commented that the Middle Eastern conflicts and risks of supply disruptions are long-term factors favoring investments in U.S. oil production:
OPEC+ has spare capacity but artificially limits production to bolster oil prices. They might also be recognizing the trend factors supporting oil investments.
This could mark the beginning of a shift in focus from battling over "profits" and "final oil prices" to competing for "market share."
Kuptsikevich also believes that U.S. oil producers might be spurred by the current oil inventory levels, which are nearing their 2015 lows, and the recent moves by the U.S. government to replenish strategic oil reserves.
Tyler Richey, co-editor at Sevens Report Research, thinks that due to the production cuts by Saudi Arabia and Russia, oil prices are artificially high. These elevated prices are "luring American capitalists":
They're taking the risk of entering the oil industry and investing in oil production... benefiting from the robust oil price environment.
Richey suggests that OPEC+ realizes that "ceding a small market share to the U.S. is worth it" as global demand continues to rise:
Because they'll enjoy a smaller slice of a much larger pie.
Since the onset of Middle Eastern conflicts, oil prices have been climbing but haven't yet reached the annual peak seen at the end of September.
Katy Kaminski, Chief Research Strategist at AlphaSimplex, notes that "noise surrounding geopolitical events" has been causing "small but unsustainable price adjustments." Ultimately, it seems oil price ranges are primarily driven by supply-demand imbalances. If prices move out of this range, supply-side actions might be taken, while demand will largely depend on whether economic conditions start to contract due to policy tightening.
