A decision by OPEC and allied countries to cut crude production through March delivered a late Christmas present for U.S. shale firms that have slashed costs, but any rise in prices spurred by the unexpected move may be just a modest stocking stuffer.
U.S. crude oil production has fallen 2 million barrels per day in the last year as low prices and demand forced shale producers to cut their losses. Investors had already been pressuring the industry to curb spending and boost returns before the pandemic hit. Shale output was quickly cut, but might return quickly if prices keep rising.
On Tuesday, Saudi Arabia, the world’s biggest oil exporter, said it would voluntarily reduce its production by 1 million barrels per day (bpd) in February and March, after Russia pushed to increase output, worried about U.S. shale capitalizing on the group’s cuts.
Russia and Kazakhstan will increase their output, reluctant to cede market share to the United States. Overall, OPEC+ had been due to restore 500,000 bpd in each of the two months. Saudi officials were concerned new increases would outpace demand during new coronavirus lockdowns.
Prices for West Texas Intermediate on Friday topped $52 per barrel, and the 12-month futures’ price, which producers use to plan spending on new wells, hit $51.37 a barrel, up from $44.63 at the start of December.