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
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.