I posted a blog ‘US
producers gulping Saudi share’ on 4th February 2017. In this blog I had expressed
my apprehension that Saudi Arabia was most likely lose its market share by cutting
down output. I also warned that with the improvement in oil prices, US producers
would be prompt in increasing their production to gulp Saudi share.
In the recent past various reports have been released
that supports my point. The reports indicate that the US production has risen to
around 9 million barrels/day. These reports also confirm that the compliance by
OPEC members is as high as 95 percent; Russia has not made the corresponding
cut in its output.
According to EIA data, US crude inventories hit record
highs last week, after eight straight weeks of build ups. This was because of increase in number of active rigs as production topped 9 million barrels per
day for a second week in a row, the most since April 2016. Increase in US crude stockpiles undermine efforts by Saudi-led OPEC to contain global oil glut.
I am obliged to share a report published by Reuters ‘U.S.
drillers add oil rigs for seventh week in a row: Baker Hughes’ indicating
that with the improvement in crude oil price the US drillers have added a total
of 293 oil rigs in 36 of the past 40 weeks. This is the biggest addition since
a global oil glut crushed the market in mid 2014. The US drillers added seven
oil rigs during the week ended 3rd March 2017, taking the total count up to
609, the most since October 2015. During the same week a year ago, there were
392 active oil rigs only.
According to Baker
Hughes, oil rig count plunged from a record 1,609 in October 2014 to a
six-year low of 316 in May 2016. This fall has been attributed to the collapse of
US crude oil prices to near US$26 in February 2016, from over US$107 a barrel
in June 2014.
Yet another sign of warning is a report by the US
financial services firm, Cowen & Co that said its capital expenditure
tracking showed 52 exploration and production (E&P) companies planned to
increase spending by an average of 50 percent in 2017 over 2016.
One of the likely OPEC decisions could be to declare that
the agreement reached last year is no longer binding for its members. Increasing
output may not pose any problem for OPEC members but could certainly put US
producers in trouble. Only price could determine who can withstand the completion.
