U.S. Production Cuts Lead the Way to Recovery

Oil and Gas
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Crude oil futures are continuing to rise this week. Production cuts across the global are playing a huge part in that recovery. Also helping is the rise in demand that comes along with the slow awakening of global economies.

The U.S. Leads the Way in Production Cuts

While demand for the year is still expected to remain below levels for the same time last year, it is believed that April was our rock bottom. There is nowhere to go now but up. OPEC and OPEC+ are making headlines with their production cut agreements, but it is really the U.S. that is carrying the day. According to an article on Fortune, “The U.S. will be the single largest contributor to a historic global drop in crude supply this year.” Worldwide cuts are expected to reach 12 million barrels per day (bpd). The United States alone will account for a 2.8 million bpd production cut. And that is only an estimate. According to Rystad, “The figures do not represent the total production curtailment that the U.S. is experiencing and will experience. Actual production cuts are probably larger and occur not only as a result of shut-ins, but also due to a natural decline from existing wells when new wells and drilling decline.”

It’s Like Walking a Tightrope

Of course, the upward trend of oil prices is like walking a tightrope. Production cuts are working to bring up the price of oil, but that is going hand in hand with a rise in demand. Many U.S. states are getting back to business. Likewise, many countries around the world are opening their economies. It is slow going for now, but at least it is going slowly in the right direction. Everyone, not just oil producers, are watching and waiting to see if there is going to be a relapse. If there is a second wave to the virus, how bad will it be? Will we shut down once again?

The crude oil markets are on the rise. We are all in this together, and we are all, in the oil patch and out, are hoping the markets continue to rise.


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