U.S. crude production fell under the 9 million barrel a day threshold last week for the first time since late 2014 — a welcome development for oil producers heading to Doha this weekend.
Output should continue dropping as the U.S. industry faces tighter financing and continued oversupply.
Production has been eroding since peaking last April near 9.7 million barrels a day, according to the U.S. Energy Information Administration data. Last week's output of 8,977,000 barrels a day is the lowest since October 2014, a month before OPEC stunned the energy world with a new market-based policy that sent prices crashing.
The goal of the Organization of the Petroleum Exporting Countries at the time was clearly to slow the output of high-cost producers — such as the upstart U.S. shale industry.
Now shale's struggles are a gift to producing countries. "They're buying time," said Andrew Lipow, president of Lipow Oil Associates. "It's going to fall off another 300,000 or 400,000 barrels a day by the end of the year."
Lipow, unlike some analysts, expects the producers meeting in Doha, Qatar, to take action to freeze output this weekend. Expectations of a deal have been pushing oil prices higher — up some 60 percent since February. Lipow said the decline in U.S. production also helped support prices Wednesday, even though U.S. inventories continue to rise.
The preliminary weekly figures from the EIA show how the decline in U.S. crude prices has hammered American free market drillers while their peers in oil exporting nations — particularly state-owned energy companies — continue pumping into a heavily oversupplied crude market.
U.S. crude production peaked at nearly 9.7 million barrels in April and fell to just under 9.2 million barrels in January, according to more accurate monthly data. The weekly figures suggest output has declined in 11 of the last 12 weeks.
Meanwhile, production from the OPEC states increased by 40,000 barrels per day to 32.38 million barrels in March, according to a survey of OPEC and oil-industry officials by Platts, an energy industry data publisher.
Increased output by Iran, which is re-establishing production after the lifting of sanctions, as well as by Iraq and Angola, offset declines in the United Arab Emirates. Output in Libya, Nigeria and Venezuela also fell.
Saudi Arabia, the world's top exporter, pumped 10.2 million barrels per day for a third straight month, Platts reported. On Tuesday, Interfax reported the Saudis had reached a deal with Russia to freeze production regardless of whether other producers participate, though the Russian Oil Ministry refused to comment, Reuters reported.
The Saudi-spearheaded policy of maintaining high production was engineered and implemented in November 2014 to pressure high-cost producers, such as U.S. shale oil drillers, to shut in marginal production.