OPEC Initiates Production Cuts

Less than one month into the announced OPEC / non-OPEC production cuts we are already starting to seeing changes to the global oil & gas market.  Various oil ministers are reporting 1.5 million barrels per day have been taken out of the market place already and this will scale to the 1.8 mpd planned.

Venezuela has implemented half of their planned 95,000 bpd cuts.  Russia has reduced production by 100,000 bpd which is ahead of their previously announced plans for production cut backs.   Saudi Arabia started scaling back production in Q4 of 2016 and is producing less than 10 million bpd and has announced additional cuts later this month and throughout the first quarter.

The effect of production cuts will reduce global oil inventories by close to 300 million barrels and shifting oil storage closer to the five year average by summertime.  

The ripple of the OPEC production cuts will take some time to effect domestic drilling but we are already starting to see an uptick in rig counts and planned drilling programs.

The oil rig count has risen by 235, or nearly 75%, from its low at the end of May
Gas rigs have also rebounded by 61, or 75%, from their own low in late August
The new production increase is likely to be even greater because of increased efficiency
OEMs recently reported a surge in U.S. Drilling
Shale producers have all indicated a big increase in their drilling budgets for 2017

In the last two weeks we have seen ExxonMobil and Noble Energy announce major acquisitions in  the Permian Basin.  ExxonMobil’s announcement of their planned purchase of Bass Family assets in the Delaware Basin for $5.6 Billion and Noble Energy’s  planned buyout of Clayton Williams Energy, Inc. for $2.7 Billion are indications that investment in domestic production is still an economic option.

The OPEC plan is to keep production levels down through the end of Q2.  It will be interesting to see if they adhere to these plans and what effect it has on domestic shale drilling programs.  Saudi Arabian production cuts are the lynch pin the OPEC deal.  All comments from Saudi Arabian Oil Minister Al-Falih indicate plans to increase production as we roll into summer.  It is unclear at this point if they plan to increase production back to 2015-2106 levels and flood the market or make increases based on global crude demands.

As we all know in the oilfield you can only control what you can control and we need to be thankful for the optimism in the industry but at the same time cautious as we move forward.  We are just over a week into the Trump administration and thus far he is staying true to his campaign promises to work towards improving the US Economy.  By the end of the first quarter we might have a clearer picture of what we can expect regulation adjustments that could affect offshore drilling programs in the gulf.

Hutchison Hayes remains optimistic with plans to support our customer base and their needs.   We have one of the largest ready to move inventories in the industry and have recently made improvements that allow us to operate more streamlined to meet growing needs of our customer base.

2016 – The Start of the Recovery
Updating Centrifuge Technology - Improving Perform...
Contact Us
  1. Please let us know your name.
  2. Please let us know your email address.
  3. Please write a subject for your message.
  4. Please let us know your message.
  5. Invalid Input