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U.S. oil production could decline this year by 2 million bpd-3 million bpd, due to limited storage capacity and low oil prices, Russia’s Deputy Energy Minister Pavel Sorokin told local media on Wednesday.
“We see that the production drop in the United States may range from 2 to 3 mln barrels daily this year either on account of storage capacities filling or merely because it is not possible for certain companies to work in the conditions of the price being $30-35 [per barrel], to say nothing of $20 [per barrel],” Sorokin said in an interview with the Roscongress Foundation carried by TASS.
Apart from large production cuts in the United States, curtailments in Canada could top 800,000 bpd, so those two North American producers could provide between 2.8 million bpd and 4 million bpd of cuts from producers that are not part of the OPEC+ pact, Sorokin said.
For the United States, Rystad Energy expected in mid-April that oil production would drop by 1.5 million bpd by the end of 2020. Around that time, Wood Mackenzie expected U.S. Lower 48 supply to be 2.6 million bpd below its pre-price collapse forecasts for end 2021. The 2.6-million-bpd drop through 2021 assumes that in response to the lower oil price, operators would cut more than 100 rigs from the Permian basin by the end of May 2020 and over 200 rigs, or 25 percent, across all plays by the end of June.
Related: Why Russia Finally Accepted Deeper Oil Output Cuts
In total, low oil prices could force 4 million bpd of non-OPEC supply out of the market, WoodMac’s Global Oil Supply team has estimated.
According to Russia’s deputy energy minister Sorokin, global commercial oil inventories could start declining in the third quarter this year if countries begin to ease the lockdowns.
The OPEC+ pact participants are motivated to cut production because the “penalty” in the absence of actions is a new market collapse, and no one is interested in that, Sorokin said.
Referring to Russia’s uneasy task to cut 2 million bpd as part of the OPEC+ deal, he said that Moscow expects to achieve “the maximum reduction level as soon as practicable.”
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.