From September 2016 to the launch of its official oil production cutback at the beginning of January 2017, OPEC’s 12 members and 12 other non-OPEC oil producing nations assumed that their overall 1.8 million barrel a day reduction would inevitably lead to a much sought after balance in world oil stocks.
Aside from ensuring and enforcing compliance by all 24 producing nations, the super cartel assumed that as crude prices rose, U.S and other producers, who were not part of the formal pact, would only increase oil output by 400,000 barrels a day.
Talk about getting it wrong.
Not only was that assumption a tad optimistic, but it may have underestimated the rapidly improving technologies of new shale techniques now used in Canada and the US which can extract four times the oil from shale formations as compared to five years ago.
While North American rig counts have risen, garnering much of the oil community buzz, it is the productivity of new super shale rigs operating in the Texas Permian Basin, Eagle Ford and Alberta’s Montney and Pembina shale plays that are blazing the way to extraordinary record output. The numbers are eye-popping. In the Permian, 2012 individual rig production was about 150 barrels of oil equivalent per day (boepd). Today, that number is 600 boepd. Indeed for the Eagle Ford play, some rigs are now producing 1600 boepd, while Canadian numbers have improved to nearly 1200 boepd! The news of these advances in North American output provides the context for this week’s surprising revision by the EIA’s (US Energy Information Agency) of its earlier estimate of November 2016 US oil production at between 8.5 and 8.7 barrels a day. According to its Petroleum Supply Monthly, the EIA revised this number to 8.9 million barrels a day, an underestimation of some 400,000 barrels. For OPEC, the news can only get worse as rig counts since the beginning of December have risen by about 15%, raising the prospect that the US could soon reach its all-time record output of 9.627 million barrels achieved in April 2015, not including the Canadian output statistics which appear to be nearly as impressive.