U.S. oil producers should tread carefully this year and avoid boosting production, which could lead to another price slump, the energy minister of the United Arab Emirates told Bloomberg in an interview.
Producers “need to be careful not to flood the market,” Suhail al-Mazrouei said, noting that the wise thing to do this year would be to be patient with production growth plans.
“It’s not going to be easy to just go and build production, seeing the inventory levels where they are today,” the official added.
The U.S. shale industry emerged as the main challenger to OPEC’s sway over global oil markets as it turned the United States into the world’s largest oil producer. The pandemic, however, affected U.S. shale as severely as it did Gulf oil producers and other OPEC+ members.
Now, the cartel seems to have reclaimed its top spot among market swingers, at least for a while, especially after Saudi Arabia’s announcement from last week that it would deepen its OPEC+ cuts by 1 million bpd unilaterally. Meanwhile, other members of the group were allowed to raise production.
The price jump that followed the announcement has made a lot more U.S. shale profitable than it was last year, so OPEC could ultimately help the shale industry get back on its feet. Yet al-Mazrouei’s warning should give those most eager to restart production growth a pause: he is basically repeating a warning that Continental Resources’ Harold Hamm directed towards the industry after the previous oil crisis.
The industry failed to heed the advice to not go all-in on production growth. It is now paying for this failure. However, the second price shock may have made producers warier, and they might heed the warning this time. So far this year, the daily average production for U.S. shale has been 8.1 million bpd, according to Bloomberg. This compares to 9.3 million bpd in March 2020, before the pandemic really hit.
By Charles Kennedy for Oilprice.com
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