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US oil production cuts exceeding expectations

Despite the lack of any formal agreement, analysis from Reuters suggests that US oil producers will cut output by 1.7 million barrels per day (bpd) by the end of June, much more than industry analysts and OPEC officials were expecting.

OPEC and its partners recently agreed to take 9.7 million bpd of oil off the market in May and June to try and stem the oversupply problem that has caused oil prices to drop to record lows, even to the point of briefly turning negative. OPEC also wanted other producers to make additional cuts to achieve a 20 million bpd total global production cut, but the US lacks established mechanisms to regulate production levels. The state of Texas recently abandoned its plans to possibly mandate production cuts.

Despite this, market forces appear to be encouraging US oil producers to cut back on oil production. According to Reuter’s estimates, North American oil producers like ConocoPhillips, Chevron Corp, and ExxonMobil, the oil supermajor behind the Mobil lubricant brand, have trimmed back production by 10%. Furthermore, Dan Brouillette, the US Energy Secretary recently said that he anticipates US oil production being 2–3 million bpd lower by the end of the year.

The cuts should be sufficient to satisfy Russia and OPEC, which were initially looking for a more formal state intervention to lower production. Previous production cuts by OPEC have brought higher prices that have benefited US oil producers, who have then been able to increase market share because they are not limited by quotas.

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