The US Energy Information Administration (EIA) has reported that it expects oil production in the seven major shale oil basins to drop from 8.019 million barrels per day (bpd) this month to 7.822 million bpd next month, a record drop of 197,000 bpd for a sector that was until recently expected to continue growing.
Total US crude oil production has already dropped by a million bpd as a lower demand for oil in the wake of the pandemic, coupled with a shortage of storage, led to low oil prices. While such a decline would normally be bad for the sector, lower production will ultimately be necessary to rebalance the oil markets. There is therefore little incentive for US producers like ExxonMobil, which also makes downstream products like grease and hydraulic oil under the Mobil brand, to produce more crude than is necessary.
The OPEC+ group has also been making good progress in achieving its aim of reducing the world crude supply by 9.7 million bpd. Speaking to Reuters, Citigroup Inc.’s head of commodities research, Ed Morse, said:
“The actual production cuts are deeper and more spectacular than any reasonable person would have thought a week ago…Partly it’s because they couldn’t sell the oil anyway. But this is a moment when they really do recognize their mutual interdependence and commonly-shared vulnerability.”
Following the EIA report, WTI crude was trading around 11% up on the day, being also buoyed by an uptick in Chinese oil demand and the prospect of a COVID-19 vaccine.