***Below is an institutional research note published last week by Senior Energy Policy analyst Joe McMonigle.
Since OPEC starting implementing its production cut agreement in January, the US energy industry has responded to higher prices by adding 73 new oil rigs.
Weekly data released Friday show the rig count is up 5 more rigs for total of 602 operating oil rigs in the US. One year ago, there were just 400 oil rigs in operation.
The production freeze talk from OPEC for most of 2016 which culminated in the production cut agreement in December has resulted in 200 new oil rigs working in the US in the last year alone.
On Wednesday, EIA reported weekly data showing US crude inventories increased again to 518.7 million barrels up 9 percent since the OPEC cuts took effect. In addition, US shale production is also responding to higher prices as official EIA weekly data has US production now back above 9 million barrels a day (b/d).
So far the current OPEC cuts are not working as intended. OPEC production is actually higher in the first quarter 2017 compared to last year, and even more ominous is that US rig counts and production are rising in response to higher prices.
The big question is whether OPEC will extend its production cut agreement when it expires in June. If global stocks are to begin the downward trend, OPEC must renew. But renewing the agreement means US production will continue to rise – undermining the entire objective.
*Email firstname.lastname@example.org for access to our institutional research.