Bloomberg (USA): American oil companies join Russia and Saudi Arabia

U.S. oil companies reduced production to a much greater extent than it seems. They responded to market forces more active than official data showed, and this means that the US is actually working together with Saudi Arabia, Russia and other major oil producers to assist in balancing demand and supply of oil — although this does not correspond to the intention of President Donald trump.

According to data provided by energy information Administration U.S. crude oil production is now around 11.6 million barrels per day. This is 1.2 million and 1.4 million barrels per day — or about 10% below the level of the plateau reached last winter (depending on what data is used — weekly, or monthly).

The end of the shale boom 2.0

To really appreciate this data about U.S. oil production, recall that last month members of the Organization of countries-exporters of oil (OPEC) and its allies have agreed that each of them will reduce its production by 22% from baseline, which for the most part correspond to the levels of October 2018. Initial data obtained on the basis of data for tracking the movement of tankers, the study of which by specialists of “Bloomberg” (Bloomberg), indicate that some of these countries, such as Saudi Arabia, to achieve this goal take active and serious steps. But other countries, such as Iraq, far behind. But large manufacturers-OPEC members, including Iraq, increased their prices and reduced deliveries of crude oil to key customers in June, which suggests that the degree of agreement will increase.

For comparison it should be noted that according to official data, the U.S. reduced production in much smaller quantities. But in these data the decline in production in the U.S. probably underestimated the volume of production cuts, which U.S. oil companies were forced to go. And underreporting of these volumes is very significant.

The volume of oil flowing into the supply system, should match the volume coming from it. This is simple arithmetic.

But if the weekly data provided by the energy information Administration, to lay down their production volumes, import volumes of crude oil taken from storage tanks (part of the equation, corresponding to a sentence), the amount is not equal to the sum of the volumes of oil available for refineries and crude oil, used, exported or placed in storage tanks (part of the equation corresponding to the demand). The energy information administration recognizes this difference by publishing a correction factor, and in absolute terms, this number becomes very large indeed.

Inflated the data on volumes of mining?

In the data a week before the eighth of may, a correction factor was 914 thousand barrels per day. This is the negative point. Simply put, the data provided by the energy information Administration last week, the supply of crude oil or overstated by 914 thousand barrels per day, or a similar level of low demand, or both.

The volume of crude oil imported into and exported from it, documented. The same applies to the volume of oil flowing into storage tanks and from them, as well as to refineries. Therefore, the most likely cause of discrepancy is the data on volumes of mining.

If the correction factor really reflects the overestimation of data on the extraction of crude oil, U.S. oil companies may only produce 10.6 million barrels per day. This means a reduction in the production of almost 2,4 million barrels per day, or 18%, which is much more in line with the production cuts agreed by OPEC and its allies.

The decrease in drilling activity

There are many indirect evidence that the United States produces oil in smaller quantities. Currently in the U.S. there are fewer drilling rigs to produce oil than even during the sharp drop in production volumes in 2016, when because of the collapse in oil prices ended the first shale boom. The first of may, consulting company “Facts global energy” (Facts Global Energy) published a research note stating that the reports on the profits of the companies indicate a possible reduction in US production by the end of June to three million barrels per day. Apparently, we are surely closer to this figure.

Despite the fact that the President trump tries to protect the American oil industry and to support the prices, trying by all means to persuade other countries to cut production, conditions in the oil market, seem to contribute to the consequences of the oil crisis was felt by all. But these more significant production cuts, although internally, they help to restore the balance of world supply and demand and create a more solid Foundation for the beginning of the restoration of oil production.