The unexpected oil production cuts by OPEC may increase demand for American oil in Europe and Asia and may encourage some other producers to increase their output, according to industry executives and analysts on Monday.
The Organization of Petroleum Exporting Countries and allies promised on Sunday to reduce production by 1.16 million barrels per day starting in the following month. Over 6% more was paid for oil on Monday, with U.S. crude futures breaking the $80 per barrel mark.
According to Matt Hagerty, a senior manager for energy analysts BTU Analytics, a FactSet company, the market shortage caused by Middle Eastern producers' curbs will amount to 2.3 million bpd on average in the second half of 2023.
By the end of the year, U.S. producers "We could see an additional 200,000 bpd by the end of the year," according to Jorge Leon, senior vice president at market research firm Rystad Energy. He predicts that exports of the new production will probably go to Europe.
According to the most recent government statistics, the United States produced close to 12.5 million bpd in January. Energy technology company Enverus predicted that production in the largest U.S. shale basin would increase by 400,000 barrels per day this year, roughly half the level in 2019 before the pandemic.
While private companies would have the incentive to increase activity, publicly traded companies are likely to maintain output levels even when crude futures are above $80 per barrel, according to Tall City Exploration CEO Mike Oestmann.
Oestmann said, "This makes new investment a little more attractive,"
A Federal Reserve Bank of Dallas survey revealed that U.S. oil and gas activity stalled last quarter and that drillers' expectations changed for the worse. They experienced a reduction in cash flow due to rising operating expenses, rising interest rates, and falling prices for crude and natural gas.
Market participants predicted that as Middle Eastern sour crudes become more expensive, the OPEC production cuts should increase demand for U.S. medium and sour crudes. On Monday, U.S. cash crude prices rose; Mars Sour gained 50 cents, trading at a $1.40 discount to U.S. crude futures.
After Russia's invasion of Ukraine disrupted oil flows, Asia and Europe have already started to demand more American crude. According to Vortexa data, U.S. seaborne crude exports last month totaled 4.74 million bpd, the highest monthly total since at least January 2020.
"This development should be good for already strong U.S. crude exports," said Rohit Rathod, senior oil market analyst at Vortexa. "Increased medium- and heavy-sour Canadian crude exports from the U.S. should supply a global market that is already short on sour crude."