The Economy

U.S. Oil Output To Decline in 2016, OPEC Says

OPEC appears to have calculated correctly that increasing its production in response to falling oil prices would force out high-cost U.S. producers.
Katie Kuehner-HebertOctober 12, 2015

OPEC’s strategy of pumping oil at high levels to squeeze out U.S. production is apparently working as the 12-nation producer group is forecasting that U.S. oil output will decline in 2016 for the first time in eight years.

In its monthly October report released Monday, OPEC predicted that U.S. oil production will drop by 280,000 barrels a day next year, to 13.538 million barrels a day.

OPEC’s numbers are consistent with those of the the U.S. Energy Information Administration, which has predicted that U.S. crude production will average about 8.9 million barrels a day in 2016, down from 9.2 million barrels a day in 2015.

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OPEC noted that lower oil prices are forcing U.S. producers to cut spending and causing their wells to deplete faster than expected. In addition, it said, many companies have hedged their crude output and accessing credit has become “more challenging” as the decline in oil prices has diminished the value of companies’ collateral.

The increasing levels of OPEC production resulting in lower U.S. production are part of the “new order” since crude prices collapsed from over $100 a barrel last year to less than $50 this year, according to The Wall Street Journal.

“OPEC once cut production in times of market turmoil in hopes that trimming supplies would boost prices,” the WSJ wrote. “This time, faced with surging American production that reduced OPEC’s clout in recent years, the group has instead kept pumping ever more, battling for market share now and hoping that low prices force out high-cost producers.”

There are signs OPEC’s strategy is working. According to oil services firm Baker Hughes, the U.S. oil-rig count dropped last week by nine to 605, the lowest since June 2010.

“This should reduce the excess supply in the market … resulting in more balanced oil market fundamentals,” OPEC said in its report.

On Sunday, Qatar’s Energy Minister Mohammed Al Sada said oil prices had bottomed out and would recover in 2016.