OPEC+ May Spur U.S. Crude Oil Exports, Tick Production Higher

OPEC's surprise oil production cuts could lead to higher demand for U.S. oil in Europe and Asia and could encourage some other producers to boost output, industry executives and analysts said on Monday.

On Sunday, the Organization of the Petroleum Exporting Countries and allies pledged to cut production beginning next month by 1.16 million barrels per day (bpd). Oil prices jumped over 6% on Monday, with U.S. crude futures topping $80 per barrel.

Middle East producers' curbs will leave markets short by an average of 2.3 million bpd in the second half of 2023, estimated Matt Hagerty, a senior manager for energy consultants BTU Analytics, a FactSet company.

"We could see an additional 200,000 bpd by the end of the year" from U.S. producers, said Jorge Leon, senior vice president at market researcher Rystad Energy. He expects that new production likely would be exported to Europe.

The U.S. pumped nearly 12.5 million bpd in January, according to the latest government data. Production in the largest U.S. shale basin should grow by 400,000 barrels per day this year, estimated energy tech firm Enverus, about half the level in 2019 before the pandemic.

Publicly traded companies probably will hold output levels even with crude futures above $80 per barrel, but private firms would have an incentive to boost activity, said Mike Oestmann, chief executive of Tall City Exploration.

"This makes new investment a little more attractive," Oestmann said.

U.S. oil and gas activity stalled last quarter and drillers' outlooks turned negative, according to a Federal Reserve Bank of Dallas survey. Increased operating costs, higher interest rates and lower crude and natural gas prices cut their cash flow.

U.S. IN SPOTLIGHT

The OPEC cuts should raise demand for U.S. medium and sour crudes as Middle Eastern sour crudes become more expensive market participants said. U.S. cash crude prices strengthened on Monday, with Mars Sour gaining 50 cents to trade at a $1.40 discount to U.S. crude futures.

Asia and Europe have already been demanding more U.S. crude, after Russia's invasion of Ukraine reshuffled oil flows. U.S. seaborne crude exports last month hit 4.74 million bpd, the highest monthly total since at least January 2020, Vortexa data showed.

"This development should bode well for already strong U.S. crude exports with increased medium- and heavy-sour Canadian crude exports from the U.S. in order to supply a global market which is already short on sour crude," said Rohit Rathod, senior oil market analyst at Vortexa.