If you were to glance at the state of the oil & gas industry in November 2018, your knee-jerk reaction would probably be negative. It’s impossible to deny that Q4 of 2018 has been unkind to this industry, but like most things, it’s complicated. Let’s take a look at US production. According to the U.S. Energy Information Administration, domestic production has increased by roughly 1.5 million barrels per day (mmbpd) in the past year. This enormous growth has surpassed expectations, and from an American standpoint, this looks good. All of this domestic growth means the United States is just that much more energy-independent from the OPECs of the world. But on the flip side, all of this unexpected supply growth has contributed to the recent drop in oil prices. This isn’t all too different from what happens in every market. A sudden boost in supply leads to a sudden drop in price, and what normally follows is a market correction.
According to an exclusive Reuters report today, OPEC has been in contact with the Russian Energy Ministry, pressing for a reduction in Russian oil production, to which the Kremlin has been receptive. Saudi Arabia has suggested a 1 million bpd cut in production between OPEC and its allies by January 2019 in an effort to raise oil prices, and it seems Russia is onboard, that is if this morning’s spike is indicative of anything.
If nothing else, the world’s oil producing nations have taken notice of the oversupply, and they’re working (very quickly) to address it.