Markets are abuzz with speculation as to what will happen should OPEC cut production as they promise. Obviously, the big issues are how much of a dent it will make in inventories, will OPEC adhere to its promises, and will non-OPEC countries who agreed to help actually cut production as promised?
But one thing I was a bit curious about is where the U.S., and various states would rank if they suddenly joined OPEC. I am not saying this is even feasible, but I wanted to compare U.S. oil production to OPEC members so that we would have an understanding of just how large the role the U.S. as the new swing producer, plays in oil markets. The most recent data we have from OPEC is from their December monthly report which has production numbers from November 2016,. Since the cuts are not anticipated to take place until this month, this will allow us a bit of an unfettered look at OPEC’s production. A few caveats. First, as I mentioned in a prior article, OPEC doesn’t trust itself, and therefore publishes two different numbers. One is their self-reported number, and the second is derived from secondary sources. Those numbers do differ. For our purposes, I’m just going to use the secondary source numbers. Second, many OPEC members still claim that they are not producing at full capacity. Despite these persistent claims, I firmly believe most OPEC producers are producing at maximum capacity without further CAPEX – something current oil prices keep them from doing. So needless to say, there is some debate about whether how much more OPEC could actually produce given economic constraints.
According to the OPEC report, OPEC produced 33.87 mb/d in November 2016. The following table summarizes OPEC production by country based on secondary sources in thousand of barrels per day:
To put that into perspective: Total non-OPEC oil supply in September of 2016 averaged 55.64 mb/d. U.S. oil production for Mid-November 2016 was approximately 8.69 mb/d. Russian oil production averaged 11.21 mb/d in November 2016.
So, overall, OPEC accounts for a bit more than a third of total world oil production and the U.S. accounts for about 10% of total world oil production. In October 2016, Texas produced some 83,182,376 barrels. This amounts to 2,683,302 barrels per day. Texas alone would therefore rank pretty high in OPEC - below the top-tier of Middle Eastern countries, but substantially outweighing all but OPEC’s biggest members. This substantially outweighs even North Dakota that in October 2016, produced 32,182,000 barrels for the month. Texas production peaked in December of 2014, when the State produced 108,478,791 barrels (3,499,315 barrels per day).
So, what can we learn? First, Texas obviously has substantial production capacity that is not being utilized. Second, I think seeing where the U.S. and Texas would fit in if we were an OPEC country is important. Outside of Saudi Arabia, the U.S. would be OPECs second largest producer – by far. This makes our ability to influence oil markets tremendous. But I really wanted everyone to have perspective on this issue and see just how big a role the U.S. plays in world oil prices.
By: Ty Chapman
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