U.S. oil output will decline in 2016 for the first time in eight years as producers slash spending, the Organization of the Petroleum Exporting Countries announced this morning, boosting demand for the cartel’s own crude and vindicating its strategy of defending market share over price.
As The Wall Street Journal reports, OPEC has slashed its U.S. oil production forecast by 280,000 barrels a day next year, leading to a decline of 60,000 barrels a day in 2016 instead of a previously predicted increase. The group says a fast depletion and expenditure cuts in tight oil, due to lower prices, were now driving down production faster than expected.
The news comes after industry group Baker Hughes Inc. last week reported a decline in the active U.S. oil rig count for the fifth straight week, dropping by nine to 605, the lowest since June 2010.
“This should reduce the excess supply in the market … resulting in more balanced oil market fundamentals,” OPEC says.
The American oil decline will also reduce overall supplies from producers outside the cartel, which will be down by 720,000 barrels a day next year, largely on reductions in the former Soviet Union, according to the report.
Last week, OPEC said global oil production would be impacted by a reduction of $130 billion—or 22%—in project investments this year.
But retreating rival producers will boost OPEC, which sees demand for its crude rising by 1.2 million barrels a day—an upgrade in forecast of half a million barrels a day—to 30.8 million barrels daily. That level is much lower, however, than its output level of 31.57 million barrels a day in September, an increase of about 109,000 barrels.
Lower prices are also expected to lift appetite for oil. OPEC says its oil-demand growth forecast was upgraded by an annual 40,000 barrels a day for 2015 to 1.5 million barrels a day. World consumption is also expected to rise by 1.25 million barrels a day next year.
