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U.S. On Track for Highest Oil Output Ever in 2018

According to the Energy Information Administration, the U.S. is currently on track to produce crude oil at a rate of 9.9 million barrels per day in 2018—a historic record for our nation. Output has never reached this high of a level since 1859, when the EIA first started recording oil production in the United States. The last time it came this close was in 1970, when daily output hit around 9.7 million barrels per day.

However, experts estimate that the 9.9 million prediction could be too low—researchers for private firms believe the average could reach 10 million barrels a day or higher by next April.

This announcement from the EIA comes only a few months after an OPEC pact to limit production of crude oil by 2 million barrels of oil per day for 6 months—with discussions to extend the pact for up to a year. This pact was designed to limit the global oil supply and stabilize prices; in the last few years, oil barrel prices have dropped from $100 apiece to around $50, which has stalled the oil production industry.

OPEC & the American Oil Boom

For some context, OPEC is a multinational organization comprised of 13 nations, who together are responsible for 42% of the world’s oil production. The de facto leader of OPEC has always been Saudi Arabia and their Oil Ministers. The group has been responsible for global oil production policy since the 1960s, when the Persian Gulf oilfields became a major factor in the global economy. The U.S. is not a member.

The OPEC pact inadvertently encouraged U.S. drilling even further, driving the use of active oil rigs to 741—a one-week increase of 12 rigs, and a 200+ increase of active rigs year-over-year. The oil boom in the U.S., combined with the Keystone Pipeline (making transport of Canadian oil cheaper and more tenable) is quickly making North America the key influencer of global oil prices—which Saudi Arabia has criticized.

Saudi Oil Minister Khalid was quoted regarding U.S. production last month, saying “We will not bear the burden for free riders this time. Saudi Arabia will not allow itself to be used by others,” implying that the U.S. has benefited from OPEC policies without being subject to them or participating in the global stabilization effort. Sanctions against Russia and the American oil boom have lessened OPEC’s influence in recent years.

Economists have long criticized OPEC for being the quintessential cartel, using artificial supply manipulation to fix prices. However, OPEC sees itself as ensuring stability in the global market—preventing volatile pricing from destroying investor confidence and causing general chaos.

The Rise in Active Oil Rigs

The use of offshore oil rigs has seen a recent uptick in an already climbing number. A total 200-rig excess is a significant increase from several years ago. Moreover, recent trends show that smaller companies are buying refurbished oil rigs from larger drillers, buying older oilfields or leasing the right to drill. Black Elk, the company who had a massive oil explosion in the Gulf a few years ago, sold many of their holdings to smaller companies now using the same rigs for continued operation.

Here’s what that means:

Increases in active rigs means increases in hiring—which is good for the thousands of families who make a living in the oil industry. What isn’t good is that boom-cycles of production drive companies to increase output while spending the same amount on safety and maintenance. That means more breakdowns, more stresses on older systems, and ultimately an increased risk of blowout and oil rig explosions.

We’ll be keeping an eye on the horizon for the next few months. If this prediction of a record high in American oil production rings true (and OPEC extends its pact), then the American oil industry could see unprecedented levels of growth and energy. On the other hand, we can only hope that companies are preparing for a boom with increased scrutiny on the safety of their rigs, providing upgrades to decades-old hand-me-downs.

Categories: Oil Rig Safety
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