A U.S. government report states that, to date, the United States stands as top oil and gas producer worldwide. The most recent figures report record production levels of 12.3 million barrels per day. With this, the U.S. climbs to the podium alongside Russia (11.23 million bpd) and Saudi Arabia (9.8 million bpd).
Some of the determining factors for this achievement were fracking, the development of infrastructure projects, deregulation, suspending waivers for purchases of Iranian crude, and agreements between OPEC and its allies.
— Petroguia (@Petroguia) 4 de mayo de 2019
Fracking: the boom that increased U.S. oil production
The technological development of the use of fracking to increase oil and gas production has contributed to the U.S. rise to the top of the international market.
A report prepared by the Council of Economic Advisors and published with the consent of the Trump administration reveals that oil output has increased by around 40 percent since 2010 thanks to fracking.
The report indicates that just in November 2017 production surpassed records established in 1970, when it hit 10.1 million bpd. In 2018, this ratio continued to increase exponentially to 10.7 million.
Over the past eight years, the production rise has been noticeable. Indeed, prior to the boom of hydraulic fracturing production levels stood 6 million bpd below current numbers. Most of the U.S. crude is extracted in Texas, North Dakota, Montana, and New Mexico.
Project development and deregulation
Other factors that influenced the production rise include the fact that the Trump administration recently authorized the development of infrastructure projects to build pipelines, and O&G production plants.
Moreover, between 2017 and 2018 the White House promoted more than 300 deregulation measures that have ostensibly benefitted oil companies. As a result, the U.S. hydrocarbons industry was estimated to save up to $5 billion.
Higher U.S. production covers for the production deficit
On the other hand, the oil deficit in the international markets forces the United States to increase crude production to meet the demand in the domestic market.
This deficit is largely the result of the sanctions that Washington imposed on Iran and Venezuela. The U.S. strategy consists on wearing down these regimes and coordinating with Saudi Arabia and the UAE to maintain oil supplies.
Additionally, Trump had granted China, Turkey, India, Japan, South Korea, Greece, Italy, and Taiwan waivers for Iranian crude purchases. Later, Secretary of State Mike Pompeo issued a severe warning to these countries, saying that those who maintain economic ties with Iran after May 1 would face the consequences.
“Saudi Arabia fully supports this step taken by the United States as it is necessary to force the Iranian regime to end its policy of destabilizing stability and its support and sponsorship of terrorism around the world,” Foreign Minister Ibrahim al-Assaf said.
China backed into a corner
One of the nations most affected by these measures is China, the biggest importer of Iranian crude. Although Chinese Foreign Minister Geng Shuang stated that his country has consistently opposed U.S. unilateral sanctions. A lot is on the line, like the fact that China would no longer purchase nearly 30 million tons of oil from Iran, which translates into a daily consumption of 586 million. China sustains that the decision would contribute to volatility in the Middle East and the global energy market.
OPEC has no certainties
Oil production has progressively increased partly thanks to the OPEC’s production cut agreement.
Analysts assure that the organization has no certainties regarding the forecast for oil supplies in the second semester of 2019, given that the production drop in Iran and Venezuela is increasingly impactful. Meanwhile, Saudi Arabia is still reluctant to increase output for fear of a collapse in prices.
Another factor that hit the global market was that several countries have halted oil supplies from the Druzhba pipeline due to contaminated crude. This disruption deprives Europe of its main supplier and it is not clear how long will Moscow take to resume operations.
Iran’s oil exports will likely further drop in May due to U.S. oil sanctions. Production in Venezuela, also affected by sanctions, could continue to decrease in the coming weeks.
The lack of information is a nightmare for the OPEC and its allies, who are set to meet again in June to decide whether to renew the production cut agreement. A panel of ministers is set to reunite in Saudi Arabia on May 19 to discuss the market and make recommendations.
For more information, check Energía16