How Will The Production Cuts Hold Up As the US and Canada Increase Production?

The EIA is starting to paint a picture – rising oil production coming out of the US, Brazil and Canada – 1.7 mmb/d in 2018 to be exact. To support this prediction, the EIA announced that U.S. production jumped 128,000 bpd last week, which substantiates predictions that the U.S. will exceed 10 mb/d as early as next month – February 2018. The EIA is now even predicting that the U.S. will scale up another 1 million b/d to 11 mmb/d by the end of 2019. The projections just keep getting revised upward.

We’re now at $70 USD Brent and consistently trading over $65 USD WTI. Nobody saw this coming so quickly so we should expect the market to rebalance sooner than forecasted which could easily happen by June if we continue to see massive storage draws. A question we should all be asking is if the market rebalances why should OPEC and Russia continue to cap their production only to give up market share to other producers? From a purely competitive point of view it does not make sense. If they want to stem the rising tide of unconventional production they need to announce their end game – soon.

The magic number for Saudi Arabia is $70 USD Brent. This is the number they need to balance their budget given their massive social subsidies. We’re there. Now what? I do not expect OPEC and Russia to maintain the cuts much longer. Other countries will break from the fold even sooner. Believe me – Venezuela would if they could.

The price war is over. New technologies trumped the conventional business model. The game has changed. The global storage over-supply swamp is now being drained out. Give it five more months and we should expect this pronouncement. Pricing has already risen given this expectation and we will likely even see $70 WTI before 2018 is out. 

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Peter Armstrong is a Principal with Armstrong Marketing Strategies, a B2B “sales results oriented” marketing and business development consultancy and services firm. Our services are offered on a fractional CMO or BD Executive basis or by project. We specialize in inbound marketing / marketing automation (either as an internally supported or outsourced solution) and formulating distinctive go-to-market strategies. Expertise spans branding, messaging, market research, web development, product marketing, new product development, trade show execution, sales force optimization, and solution selling sales training.

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