The US overtook Russia to become the world’s biggest producer of oil in August, according to the US Energy Information Administration data release on October 31, but Russia is expected to win back the lead in the coming months.
Russia has been the biggest single producer of oil in terms of barrels produced a day for several years, but the shale oil revolution in the US has seen production there skyrocket in recent years. As average oil prices rose to over $65 in the first quarter and then to $75 in the second quarter more and more US shale producers, which have higher costs, have become economically viable again. Oil production in the US in August rose to a record 11.346mn barrels per day (mnbd) against 11.21mn from Russia.
American oil companies increased shale oil production in Texas, Colorado and other states, reports Bloomberg. In the Gulf of Mexico, as in New Mexico, oil production reached a record high.
However, America’s lead may be short lived. Russia has been capping its production as part of the Opec+ deal agreed with the Middle Eastern oil cartel to boost prices on the international market. Russia agreed to cut 300,000 barrels a day under the terms of the deal that expired earlier this year.
In June the deal was revised and an extra 1mnbd was added to the previous limit that could allow Russia to expand production and hit fresh record production highs as soon as this year.
Russian Minister of Energy Alexander Novak has already stated that Russian production might grow 0.2mnbd in the second half of 2018. The initial output target was set on the basis of October 2016 production (11.15mnbd), VTB points out, though the highest daily production in October 2016 was fixed at 11.25mnbd.
In September Russia had already increased its production to a new record 11.37mnbd and in October Russia is expected to be back at number one as production should exceed 11.4mn.
The CEO of Russia’s biggest oil company Rosneft, Igor Sechin, has accused the US of trying to regulate the global oil market. Russia has long avoided teaming up with Opec and limiting its production, but has changed tack in recent years partly in the face of rising US production which has totally altered the dynamics of the international oil market.
For its part despite being a long time ally of the US, Saudi Arabia has been alarmed by the advent and rapid growth of US oil production. Saudi tried to kill off the growth of the US shale production by engineering a collapse of oil prices at the end of 2014, as shale oil is significantly more expensive to lift than from traditional oil deposits. But the plan failed as US companies have managed to innovate and quickly brought costs down to the market level and remained in business. Now that prices have risen most US shale producers are viable again.
And the production race is not over. According to the consulting company Rystad AS, cited by Bloomberg, even with an oil price of $55 per barrel by 2030, the US can increase production to 16.5mnbd.