HOUSTON – With costs to produce U.S. oil still dropping and domestic drillers increasingly hedging their output, OPEC said it is less certain of its forecast that oil production among its outside will fall by 700,000 barrels a day this year.
The Organization of Petroleum Exporting Countries believes the United States’ output of crude and other liquids will fall by 420,000 barrels a day this year, which should help ease the global oil glut more than any other non-OPEC country this year. That’s down by 20,000 barrels from its forecast the previous month.
But some U.S. producers are “choosing to produce with losses rather than stopping production,” OPEC observed in its monthly oil-market report released Monday. That, along with increased hedging and lower U.S. oil production costs, “has caused the non-OPEC supply forecast in 2016 to become more uncertain.”
In recent weeks, oil prices have entered a range that makes it possible for U.S. oil companies to hedge their crude production in the mid-$40 per barrel range, which they could do as protection against another slide in crude prices. Oil companies have said they would hedge if futures contracts for delivery in later months reached those levels, and traders say that activity has picked up somewhat.
OPEC said the increased uncertainty comes even though big oil companies are cutting capital expenditures and the U.S. rig count is falling. So far, the nation’s slowdown in oil production has come from Texas, North Dakota, New Mexico and Colorado, though output in the Gulf of Mexico rose by 112,000 barrels a day at the end of last year, OPEC noted.
Break-even oil-production costs in the United States, OPEC said, “are estimated to be higher than current oil prices in most areas of the US and Canada as well as Mexico, although the upstream industry has seen a remarkable reduction in drilling and completion costs during 2015.”
Within OPEC, crude production fell by 174,800 barrels a day to 32.28 million barrels a day in February. According to secondary sources, Iran’s oil production increased by 187,000 barrels a day last month, OPEC said, as production in Iraq, Nigeria and the United Arab Emirates fell by 406,000 barrels a day.
OPEC’s forecast of worldwide demand for its own crude this year slipped by 100,000 barrels a day to 31.5 million barrels a day, compared to its numbers in February.