Just a few years ago, hardly anyone expected that that the U.S. would be competing with the world's top oil producers for the number 1 spot.
Yet, thanks to the shale resurgence, here we are-over the past few weeks, American crude oil production outstripped that of Saudi Arabia, OPEC's de facto leader and biggest exporter.
Now the U.S. is on track to dethrone in the coming months the world's current leader in oil production: Russia.
Ironically, the second U.S. shale boom came in the wake of the OPEC/non-OPEC production cut deal masterminded and led by OPEC's Saudi Arabia and non-OPEC's Russia. As OPEC and its allies have been withholding a total of 1.8 million bpd production over the past year, oil prices have increased, thanks to the overhang drawdown on the back of restricted supply and stronger-than-expected global demand growth amid robust economic growth in basically all regions of the world.
Except for the brief hiccup two weeks ago, WTI prices have held above $60 a barrel since the start of 2018. And shale production is booming and on course to crown America as the world's top oil producer as early as later this year.
The U.S. will become the world's largest crude oil producer by 2019 at the latest, Fatih Birol, the Executive Director of the International Energy Agency (IEA), said this week. The U.S. will overtake Russia as the world's largest oil producer "definitely next year", if not as early as this year, he said.
"The United States will become the No.1 oil producer sometime very soon," Birol told Reuters, reiterating the IEA's estimate from its latest monthly Oil Market Report published earlier in February.
"US crude output, up 1.3 mb/d year-on-year (y-o-y), will soon overtake Saudi Arabia and could catch Russia by the end of the year," the IEA said two weeks ago.
"All the indicators that suggest continued fast growth in the US are in perfect alignment; rising prices leading, after a few months, to more drilling, more completions, more production, and more hedging," the IEA said, warning that the surge in non-OPEC supply-led by the U.S.-could tip the oil market into deeper oversupply, again.
Related: Should OPEC And U.S. Shale Collaborate For Survival?
U.S. forecasts also suggest that the American oil production will beat both Saudi Arabia and Russia this year, assuming that the OPEC/non-OPEC deal remains intact until the end of 2018, as currently planned.
The U.S. Energy Information Administration (EIA) expects in its latest Short-Term Energy Outlook that U.S. production will average 10.6 million bpd this year. This is higher than Saudi Arabia's current production of just below 10 million bpd.
U.S. production will average 11.2 million bpd in 2019, the EIA said earlier this month. This is higher than Russia's current production of just below 11 million bpd, as Moscow is cutting 300,000-bpd production as part of the OPEC-and-friends deal.
So far in February 2018, U.S. crude oil production has topped 10 million bpd in each of the three previous weeks, EIA data shows.
Not only is the U.S. boosting oil production, but it is also increasing its oil exports, including to the prized Asian market on which Saudi Arabia and Russia have been competing for market share. Higher U.S. oil exports-including to China and a historic first to the Middle East-are upending the global oil flows and eating away at the market shares of Saudi Arabia and Russia.
Still, OPEC and its allies seem unfazed by U.S. shale and continue to send messages to the market that they will do "whatever it takes" to balance the oil inventories and that production cuts are here to stay until the end of 2018.
OPEC's most influential minister, Saudi Arabia's Energy Minister Khalid al-Falih, said over the weekend that easing of the production cuts would start "sometime in 2019".
"But we don't know when and we don't know how," al-Falih said, confirming that he wants a permanent 'super group' of OPEC and non-OPEC producers "in a market monitoring fashion that allows us to take quick decisions."
OPEC and its non-OPEC partners are set to review the deal in June and take stock of the pace of the market rebalancing. With soaring U.S. production threatening to undo a large part of their cuts, the cartel and allies may have to consider if the time has come for them to start defending their market share, or if they should stick to the cuts in the name of higher oil prices in order to get more oil revenues in budgets and boost the valuation of Saudi Aramco for the IPO currently planned for the second half of 2018.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More