While the main event this weekend was the latest OPEC+ meeting which saw member states of the oil cartel and their allies scramble to promise that oil production will be cut if oil prices continue to drop due to excess supply now that Iran’s oil exports may rebound thanks to waivers granted to its main trading partners by the Trump administration, a just as important event to take place was the news of record oil production levels in North America.
Helped by higher prices, total oil production has hit a record level in the US, reaching a combined 15.9 million b/d (crude oil and NGLs) in the past month and almost 2mn b/d above last year.
This number is broken down into 11.35mn b/d of crude oil and 4.57 mn b/d of natural gas liquids (NGLs). As a reference, the US will likely consume about 20.7mn b/d of oil and other liquid fuels in 2018. The surge in US and also Canadian output has pushed total North American crude production volumes above 20 mn b/d.
The larger-than-expected surge in North American oil volumes has come primarily from the Permian, Canada’s oil sands, and more recently, the Gulf of Mexico.
In contrast to the fast growth experienced by its Northern neighbors, Mexican oil output continues to fall as the effects of the latest energy sector reform have yet to be translated into output.
Notably, this surge in North American oil production is only set to accelerate, and according to Bank of America forecasts US crude oil volumes alone will exceed 12MM b/d in 2019. It is this sky high production in the US, coupled with incremental barrels coming from Saudi Arabia and Russia, that together with the Iran wildcard is starting to impact oil market balances. As such, crude oil inventories are starting to increase once again and has led to the recent bear market in oil prices.
Of course, as anyone with a passing interest in the energy sector knows, the faster than expected growth in the US, coupled with more barrels coming from Saudi Arabia and Russia following a challenging meeting last July, is starting to impact oil market balances. For starters, crude oil inventories in the US are starting to increase once again on the back of surging North American output and refinery turnarounds. Meanwhile, there is a risk that total OECD oil inventories may follow suit on the back of the surge in OPEC+ volumes.
