Signs of US Production Increase Could Trigger OPEC+ Response, Stratas Warns

In a Stratas Advisors report sent to Rigzone by the Stratas team late Thursday, the company warned that signs that the U.S. is ramping up production could provoke an OPEC+ response.

“With respect to U.S. supply, Trump’s energy policies will be more friendly to the oil and gas sector, including less-intrusive regulations along with efforts to encourage allies to import more oil and gas from the United States,” Stratas noted in the report.

“The U.S. oil sector, however, does not exist in a vacuum - and signs that the U.S. is ramping up production could provoke a response to OPEC+ because of the perceived threat to its market share and ability to influence the oil market,” it added.

The report stated that members of OPEC+ have been willing to reduce their supply to provide support for oil prices but warned that this approach will be reassessed if members of OPEC+ feel that the market position of OPEC+ is being eroded.

“If the threat is viewed as being significant OPEC+ could bring on additional supply to collapse the oil prices in an attempt to inflict financial harm on non-OPEC producers, including U.S. producers, to make it more difficult to sustain capital investments,” the report said.

In its latest short term energy outlook (STEO), which was released this week, the U.S. Energy Information Administration (EIA) projected that U.S. crude oil production will average 13.23 million barrels per day this year and 13.53 million barrels per day in 2025. U.S. crude oil output came in at 12.93 million barrels per day last year, according to the STEO.

The EIA’s STEO forecasts that total OPEC+ crude oil production will average 35.78 million barrels per day in 2024 and 36.37 million barrels per day in 2025. This production averaged 37.08 million barrels per day in 2023, the STEO highlighted.

Global crude oil production is anticipated to average 76.51 million barrels per day in 2024 and 78.28 million barrels per day in 2025, the STEO showed. This production came in at 76.57 million barrels per day last year, according to the STEO.

The EIA’s OPEC+ figures comprise OPEC members subject to OPEC+ agreements plus Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan, and Sudan.

Rangebound Pricing

For several months the price of WTI crude has been trading in a range between $67 and $77 and the price of Brent crude has been trading in a range between $70 and $80, the Stratas Advisors report noted.

“The rangebound nature of oil prices is the result of the factors that have been governing the market,” it said.

“These factors include muted oil demand growth with China’s economy sputtering. Additionally, despite the tensions in the Middle East and the ongoing conflict between Russia and Ukraine, the oil market has dismissed, for the most part, the geopolitical risk because the flow of oil has continued for the most part unabated,” it added.

“These factors, along with the concerns about the level of oil supply that has been shut-in by OPEC+, are keeping a lid on oil prices,” it continued.

The report stated that the return of Donald Trump to the U.S. presidency has the potential to shift the oil market by affecting these factors, “including the supply/demand fundamentals, as well as the macro-level factors - geopolitics and macroeconomics”.

In its latest STEO, the EIA projects that the Brent spot price will average $80.95 per barrel in 2024 and $76.06 per barrel in 2025 and that the WTI spot price will come in at $77 per barrel this year and $71.60 per barrel next year. In 2023, the former averaged $82.41 per barrel and the latter averaged $77.58 per barrel, the STEO highlighted.

Rigzone has contacted the Trump campaign and OPEC for comment on the Stratas report. At the time of writing, neither has responded to Rigzone yet.

To contact the author, email andreas.exarheas@rigzone.com