OPEC reported today that the cartel pumped crude last month at the rate of 31.57 million barrels a day, the highest rate in three years. This marks the 16th consecutive month that OPEC has exceeded its output target of 30 million barrels of oil a day.
The news brought West Texas Intermediate futures back below $50 a barrel. U.S. oil has broken the $50 level for three consecutive days now, but has been unable to hold on into the close.
Gulf Oil State ministers have expressed a consensus that the market has seen the bottom for oil prices, with non-OPEC production dropping and U.S. shale squeezed by OPEC 's oil boost. Shale production in the U.S. is already down nearly 600,000 barrels a day since the first quarter.
High-cost shale operations in the U.S. and Canada are shutting down, as they find difficulty in refinancing their debt. Debt that was initially taken on using a prediction of $75-$100 oil is maturing, and banks are turning away drillers who can't operate at a profit on $50 oil. The oil rig count in the U.S. fell for the sixth consecutive week last week, as producers who have already wrung out as much productivity gains as they can, go under.
Oil executives at the Oil and Money conference in London last week warned of a "drastic" decline in U.S. oil production next year, as shale companies fall out of the market, and exploration is curtailed. The U.S. Energy Information Agency expects that domestic oil production will drop by one million barrels a day next year, to 8.6 million barrels a day.
One non-OPEC oil producer who is meeting the cartel tit of tat is Russia. With domestic exploration and production costs cushioned by the fall in the ruble, Russia has boosted production to 10.74 million barrels a day, a post-Soviet era record.
Rumors are swirling that Russia may meet with OPEC oil ministers to set production quotas. OPEC's minor members, such as Venezuela, Nigeria, and Algeria, do not have the vast cash reserves of the Gulf Oil States, and are experiencing severe hardship at current oil prices.
Even if prices do rise later this year, it will be too late for some shale drillers. Of those that are surviving by mothballing unproductive wells, it could take up to nine months to bring them back into production, according to Gary Ross of PIRA Engergy Group.
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