American Oil and Gas Reporter - May 2023 - 25

Output Cut Announcement
Reveals Critical Need For
Increasing U.S. Production
A surprise announcement from OPEC-plus that it will cut
oil production 1.16 million barrels a day has shown that global
market dynamics are, yet again, the pivotal factor for oil prices,
with that week's U.S. prices spiking 5.31% to $84.13 a barrel.
The increase constituted the largest rise in almost a year after
U.S. producers helped bring them down with more production.
The OPEC-plus announcement expands its production cuts
from October 2022 and brings the total volume of global supply
cuts to 3.66 MMbbl/d. The announcement came only a week
after the Biden administration promised to veto H.R. 1, Housepassed
legislation with bipartisan support that aims to " expedite
the development, importation and exportation of energy resources, "
and could increase domestic production capacity by as much as
3 MMbbl/d-more than enough to cover the latest global production
cut and nearly enough to make up for the cumulative
missing output.
These production cuts demonstrate the importance of
supporting U.S. oil production with our federal policies and investment
from the financial community. But producing oil is
not like turning on a water faucet. It takes months to bring production
up. If U.S. producers want to produce more oil, it takes
at least six-nine months to ramp up. The timeline for increasing
production on federal lands is even longer, thanks to a lengthy
bureaucratic permitting process. " The Lower Energy Costs Act "
would make huge strides to increase production and lower consumer
costs, but the greatest necessity is a sustained vote of
confidence in U.S. oil and natural gas from the top down. U.S.
producers want long-term certainty.
Contrary to the administration's tendency to direct frequent
price gouging allegations at American companies, the sharp oil
price increases after the OPEC-plus announcement illustrates
how the market-and not individual companies-truly determines
energy costs. The key variables that pushed oil prices above
$80 a barrel were the same as always: supply, demand and
geopolitics.
Energy Aspects founder Bob McNally warns that the combination
of these variables increases the possibility that oil prices
can reach $100 a barrel, if " Chinese demand goes back up to 16
MMbbl/d (in the) second half of this year. "
And the International Energy Agency further warns that the
latest cuts risk further exacerbating the deficit in global oil
supplies that it expects to emerge in the second half of the year.
The White House is downplaying the OPEC-plus production
cut, insisting that the important difference is that today's global
oil prices are around $80 a barrel, compared with $110 and
$120 last year. This is cold comfort to American consumers
who still pay $1 more for gasoline today than they did when
Biden took office. Gasoline prices have been increasing slowly
but surely during recent months and are expected to climb
further as the production cuts take full effect.
The production cuts also complicate U.S. allies' supply
chains as they scramble to secure energy supplies ahead of
importance of supporting U.S. oil production " These production cuts demonstrate the
with our federal policies and investment from
the financial community. But producing oil is
not like turning on a water faucet.
"
summer. In 2022, the United States increased its oil shipments
to Europe by 70%, and exports were projected to stay high following
the European Union's implementation of a ban on
Russian petroleum products in February. If supply tightens, it
will jeopardize the United States' ability to sustain those exports
and continue to elevate prices on the European continent. Future
gasoline contracts already are trending higher.
The bottom line: OPEC-plus's production cuts are only
starting to take effect, but the global economic impact is already
unmistakable. While National Security Council spokesman John
F. Kirby is content to observe that the United States lacks a seat
at OPEC's table to advise against the cut, the administration
definitely can take action to stymie its impact.
❒
JEFF ESHELMAN is president
and chief executive officer of the Independent
Petroleum Association
of America and the founder/executive
vice president of Energy in
Depth. Along with more than two
decades at IPAA, he previously
worked at the Defense Logistics
Agency, the White House Office of
National Drug Control Policy and
three public affairs firms.
MAY 2023 25
American Oil and Gas Reporter - May 2023

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