• Talks taking place between US shale producers and Opec over production cuts, but they will come regardless of an agreement

    Date posted:

    • Post Author

      Patrick Lavery

      Combustion Industry News Editor

The oil price and overproduction crisis has led to talks between Opec and US shale oil producers, as well as one of Texas’s energy regulators (the Texas Railroad Commission), in an attempt to agree measures to steady oil prices. Ryan Sitton, one the Texas Railroad Commission’s three commissioners, told the Financial Times that output curbs on the part of US shale oil producers could be one of the bargaining chips in negotiations, which will also include Russia. Presumably, Opec and Russia will also be offering production cuts, with the aim of bringing demand and supply back into some kind of alignment, raising oil prices and revenues for producers, both in the short and long terms. Mr Sitton emphasized that although Texas was ready to “get around the table”, the ultimate decision on the US side would rest with President Trump, and there are clear messages that US producers are not united in seeking an agreement. The chairman of the Railroad Commission, as well as the American Petroleum Institute are not supportive of the idea, with a spokesperson from the API saying that “We think imitating Opec is the wrong direction. Ultimately we believe quotas end up penalising efficient production.” With such opposition, it is presently difficult to see an agreement being made.

Regardless of what the outcome of discussions will be, however, output of shale oil from US producers is expected to decline sharply in the second half of the year. Currently at a record high of 13 million barrels per day, the decline could mean a reduction of 2.5 million barrels/day by the end of 2021, though this will depend greatly on what happens to the oil price – a further price drop could mean 4 million barrels of oil per day could be cut, and higher prices would lead to less of an output cut. Many producers are sharply scaling back their planned capital expenditures for this year (ranging between 10% and 40%), including Occidental, Apache, Diamondback Energy, Continental Resources, ConocoPhillips, Concho Resources, Pioneer Natural Resources, Parsley Energy and Cimarex. It seems US shale producers will have the choice of cutting production sooner (in agreement with Opec) or cutting it a little later in response to market forces.