10 years ago this topic was unthinkable. But, now it is almost a reality. The US produces roughly the same amount of oil and derivatives per day as Saudi Arabia and Russia combined, the two historical dominators of the oil market. The cuts implemented by OPEC, and that also affected Russia, along with a dramatic increase in US production caused this historic surprise in the world of energy. By 2024, overtaking will become a reality.
This was stated in the latest monthly report from the Energy Agency published on Tuesday. “The three largest oil producers in the world – the US, Saudi Arabia and Russia – had mixed fortunes last year. The US increased, with total oil supplies in October of approximately 1.2 million barrels. barrels (mb/d) higher than a year ago, with 19.8 mb/d, almost as much as Saudi Arabia and Russia combined.”
In the case of Saudi Arabia, OPEC+ cuts and strong voluntary restrictions have reduced its production by a whopping 1.8 mb/d since October, to 10.9 mb/d. Coupled with rising US supply, the gap between the world’s top producers has widened by nearly 3 mb/d in the past year alone.
On the other hand, Russian production decreased by 170,000 barrels per day compared to October last year, to 10.9 mb/d. With these data, “the world’s leading oil producer (the US) already represents 80% of the total global supply expansion, which will grow 1.7 mb/d this year and represent two-thirds of growth outside OPEC+, which will be 2.1 mb/d,” the IEA report said. Between Russia and Saudi Arabia they produce more than 20 mb/d.
However, the increase in US production, as a result of the return of the whole fracking activity, is facing its limits. For next year, the IEA expects the United States to increase its production by only about 400,000 additional barrels per day, “but the total supply of oil, excluding biofuels, is expected to approach the historical mark of 20 mb/d”. This amount could exceed that of Russia and Saudi Arabia combined, which if they continue the cuts (plus Moscow sanctions) could produce less oil than the US.
The US will feed the world with oil
By 2024, the US alone will account for a quarter of the increase in oil supply. On the contrary, the OPEC + bloc (which includes Russia) is on track to record another drop, this time of 380,000 barrels of production this year due to the voluntary restrictions of Saudi Arabia and the group as a whole. This drop, in contrast to the increase in pumping in the US, will bring a historic surprise for the oil market.
OPEC+ oil cuts have kept crude prices high, but at the same time reduced the cartel’s market share. OPEC+ must closely monitor this trade off (higher prices in exchange for smaller sales), because having a large market share is key to influencing the price of crude oil.
Little by little, the US, Brazil or Guyana are eating the market share from OPEC countries. The US has been the main threat to the cartel since 2014 (when the fracking and shale oil boom began), but gradually other countries have joined the power of North America, as in the case of small Guyana, which, with in There are 800,000 inhabitants, it will produce about 1.2 million barrels per day in 2027. Brazil already produces more than 3 million barrels per day. It is expected that in the coming years other countries such as Suriname or Namibia will join, where oil has recently been found.
Logically, OPEC is trying to attract these new oil powers, but so far it has not been successful. Cartel leaders have tried to persuade Guyana to join the group led by Saudi Arabia, but the Government of Guyana prefers, for now, to rely on market forces and continue to attract foreign investment to take advantage of these opportunities. its oil resources.
OPEC and its cuts
Being part of OPEC or even OPEC+ (which includes Russia) means submitting to the cartel’s rules. The current oil cuts are mandatory. If Guyana wants to stay out of OPEC, it achieves a double benefit: it needs to increase oil, as a result of OPEC cuts, and gains market share, as a result of policies of the cartel.
In this way, OPEC lost its power and control as new players appeared in the crude oil market. As can be seen in the bar graph, the oil produced by the countries that did not form OPEC+ (this group is already a ‘repair’ of OPEC including Russia and its satellites to maintain a market dominance ) almost coincides with the extended cartel.
The inclusion of Russia and its allies in the cartel is a desperate move to maintain high global production quotas. However, this movement may, in the long run, be more of a problem than a solution. Russia is an old ally of Iran (Shiites), the main counterweight of Saudi Arabia (Sunnis) in OPEC. Moscow and Tehran may align in the future to defend policies opposite to those defended by Riyadh, almost always in favor of cuts. This will mean the definitive cracking of an OPEC that is increasingly having problems maintaining its influence in the market.