Surging US Oil Production Challenges OPEC’s Market Edge

Oil prices have remained low despite production cuts by the Organization of Petroleum Exporting Countries, in large part because of increased output in the United States.

The U.S. Energy Information Administration projects U.S. crude oil production will rise to a record 12.61 million barrels per day in 2023 from 11.89 in 2022. U.S. output as of April 2023 was already up more than 8% from a year earlier due to improved efficiency, the administration’s data shows.

The increased production signals that the global cartel’s pricing power could be weakening, The Wall Street Journal reported Friday. Saudi Arabia and Russia —  members of OPEC+, which comprises 13 nations and Russia-led allies — agreed to deepen supply cuts on July 3. The drop in production amounts to 1.5% of the world’s output and about 6% of last year’s production, according to the Journal. 

While the reductions initially caused price jumps, Brent crude oil is currently trading around $76 a barrel, down 13% from January.

Prices are likely being saddled by weakened demand from China and surging production in countries outside of the organization, including Brazil, Canada and Norway. Increased output elsewhere makes up for roughly two-thirds of OPEC’s cuts, with half the new flows coming from the U.S., according to estimates by Rystad Energy cited by the Journal.

Improved production efficiency has driven down the cost of drilling and fracking in the U.S. shale patch by 36%, even as oil volume has increased, the Journal reported citing data from J.P. Morgan. Lower production costs mean companies earn more from cheaper barrels.

The United States is the largest oil producer in the world, making up about 20% of total global oil production in 2022, according to the Energy Information Administration. OPEC+ members produce about 40% of the world’s crude oil.