The epic American oil boom is just getting started. OPEC, on the other hand, is stuck on the sidelines.
US oil production is on track to spike to a record 13.4 million barrels per day by the end of 2019, according to a recent report by energy research firm Rystad Energy. Texas alone is expected to soon top 5 million barrels per day in oil production — more than any OPEC member other than Saudi Arabia.
Not surprisingly, America is importing less from OPEC — 1.5 million barrels per day as of March, the lowest level in three decades. In the past decade alone, imports from OPEC have fallen 75%.
The surge in American barrels — led by the Permian Basin in West Texas — has offset oil blocked by US sanctions on Venezuela and Iran. But all of that US oil is also contributing to a supply glut that last week sent crude into another bear market.
OPEC has been forced to scale back its output — a trend that could continue as the cartel tries to prop prices back up.
"We continue to see the Permian representing the key driver of global oil supply growth for the next five years," Goldman Sachs analyst Brian Singer wrote to clients on Monday.
US daily output could soon top 14 million
The ferocity of the US shale oil revolution has caught analysts off guard several times over the past decade.
Rystad Energy ramped up its year-end US output forecast by 200,000 to 13.4 million barrels per day. In May, the United States likely produced a record 12.5 million barrels of oil per day, the firm added. All but four million of those barrels were from shale oilfields.
That growth is expected to continue. The United States is on track to end 2020 by producing 14.3 million barrels per day, Rystad projects. That's slightly higher than the firm previously estimated and nearly triple 2008's output.
Of course, analysts could have to rein in those blockbuster forecasts if oil prices crash significantly further. That would force American frackers to preserve cash and pull back on production.
OPEC's production hits five year low
OPEC remains in retreat as the cartel tries to balance the market by putting a floor beneath prices.
OPEC's oil production tumbled to 29.9 million barrels per day in May, the lowest level in more than five years, Rystad said. OPEC output is down 2.6 million per day since October 2018 — the month before oil prices crashed into the last bear market.
Khalid al-Falih, Saudi Arabia's energy minister, said recently that OPEC is close to a deal to extend its production cuts. Those cuts, which Saudi Arabia has borne the brunt of, are due to expire at the end of June.
"We think that OPEC will at least maintain its output cuts, and maybe even deepen them at their next meeting," Caroline Bain, chief commodities economist at Capital Economics, wrote in a note to clients on Monday.
Rystad dimmed its projection for Saudi Arabia's oil production from 10.6 million barrels per day to 10.3 million.
Venezuela, Iran under pressure
OPEC's output could be further hurt by problems in some of its member countries.
Iran's oil exports have plunged because of US sanctions. The years-long collapse of Venezuela's oil industry has been accelerated in recent months by US sanctions and sprawling blackouts in the South American nation.
"There appears little prospect of a recovery in output from Iran or Venezuela any time soon," Bain wrote.
Violence is also threatening oil production in Libya and Nigeria. All told, Rystad Energy estimates 1.3 million barrels per day of oil production is at risk in those four OPEC nations.
"Risks to short-term supply are undoubtedly still plentiful," Rystad analyst Bjørnar Tonhaugen said in the report.
Will crude slide below $50?
Despite all this, analysts aren't predicting a spike in oil prices. If anything, forecasters are bracing for more pressure on prices, due in part to robust US production.
Brent, which has tumbled about 15% since late April to $63 a barrel, should finish the year at around $60 a barrel, according to Capital Economics.
US oil prices, trading at about $54 a barrel, are down nearly 19% since late April. Recent selling has been driven by a spike in oil inventories that suggest demand for crude is deteriorating.
Goldman Sachs said that a reversal in the oil demand metrics will be required to prevent US oil prices from sinking below the $50-$60 range.
"Our real concern is over demand weakness," consulting firm Facts Global Energy wrote in a report on Monday. "Have we entered an era where demand will keep falling and we have a lot more oil on our hands than expected?"
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