From Traders working the floor of the New York Stock Exchange to the owner of mom and pop oil and gas companies, everyone was waiting to hear if the Organization of the Petroleum Exporting Countries (OPEC) would extend oil production cuts. This anxious feeling of waiting on OPEC nations to decide the flow of the market may soon come to an end.
Previously, OPEC has had a stronghold on global oil production. Between 2014-2015, OPEC continually exceeded their production ceiling at the same time the U.S. was increasing oil production due to the advancement in shale fracking technology. The mixture of OPEC production exceeding the ceiling and the U.S. moving toward energy independence created an oversupply of oil in the worldwide market, which would eventually lead to a collapse in oil prices in 2016.
OPEC tasted blood in the water and saw an opportunity to regain market shares so they pumped as much oil as they could into the market in attempt to put U.S. Shale producers to rest. However, after years of demising returns and waning financial reserves, OPEC members were ready for a change and sought to agree on production cuts – the first since 2008.
In November 2016, after OPEC had regained a modest portion of the market shares and many competing drilling projects had been canceled, OPEC finalized a decision to reduce production by approximately 1 million barrels per day. Since the agreement, oil prices have risen, and U.S. oil production is up.
Last week it was announced that 22 nations agreed to extend crude oil productions cuts for an additional 9 months. This cut will account for nearly 2 percent of global production in the market, hopefully boosting prices. With each production cut that OPEC agrees to, it leaves the door open for American producers to maintain a steady incline.
During the slower times, American producers became more efficient and learned how to produce profits at low global prices. U.S. crude production has seen steady growth topping more than 9 millions barrels a day in February, and the rigs in operation have more than doubled from May of the previous year. As OPEC continues to cut production, the U.S. will continue its quest to become energy independent and an oil and gas superpower.
The control that OPEC once had is no longer there. According to a chief market strategist for ThinkMarkets in London, “The oil cartel is simply no longer a super power.” Even the Saudi Energy Minister Khalid Al-Falih has expressed the certainty that OPEC no longer possesses the power to control the global market. The sharp increase in production has put OPEC in quite a predicament, and now they are left to figure out how they will coexist will U.S. production.
The old oil cartel significantly underestimated the resiliency of the United States and awoke a sleeping giant. As the U.S. continues stake its claims as a superpower, Louisiana will continue to be at the center of this quest. Our pipeline infrastructure continues to be the envy of neighboring states, not to mention our ports, channels, and access to the Gulf. These advantages give us the ability to export our oil and gas products globally and lead the U.S. to energy independence.
Don Briggs is the President of the Louisiana Oil and Gas Association.