Reality drifted through global oil markets last week after OPEC+ bowed to reality and announced it would start easing its production caps, while keeping others in place until next year. It was an admission that even with control over 30% of the global oil market — around 40% if Russia is assumed to be a de facto member of the group — OPEC+ can’t guarantee long-term price growth.
OPEC+ stated it will begin phasing out 2.2 million barrels per day in production cuts starting in October. However, on Friday, there was talk that those cuts could be amended or pushed back if prices weaken.
Stability was deemed the best option, as even if prices bounce higher and lower, movement within a narrow band isn’t going to help revenue-needy countries like Saudi Arabia, Iraq, UAE (and Iran), and especially war-torn Russia.
OPEC+ likely anticipated that global prices would soften after the latest cap decision was made public. By Friday, the prices of US West Texas Intermediate-style crude and its global benchmark, Brent, were down around 2.3% each. If sustained for the next few months, this decrease will ease inflationary pressures in many economies.
The big disruptor has been the consistently high volume of US production at 13-13.1 million barrels a day, bolstered by new sources like more than half a million barrels a day from the emerging fields offshore Guyana. Meanwhile, the efficiency of US shale producers continues to improve, as confirmed by the latest rig usage numbers from Baker Hughes.
The number of oil rigs in the US slipped by four for the week ending last Friday (June 7), from 496 the week earlier to 492. This is eight fewer than the 500 in use at the end of 2023 (and the most recent peak of 511 in January). The tally for gas rigs fell by two to 98, while miscellaneous rigs remained unchanged at four.
A year earlier, the US had 556 oil rigs, 135 gas rigs, and four miscellaneous rigs in operation. Overall, 594 rigs were operating in the US last week, down from 695 a year earlier.
