The Saudis have begun to boost oil production.
In addition, other OPEC members are expected to follow the Saudis’ lead later this month.
Last month, #Saudi Arabia’s oil minister said he was considering relaxing recent #OPEC production cuts. Saudi Arabia, fellow members of the Organization of the Petroleum Exporting Countries, Russia and a handful of other big crude producers, agreed in 2016 to throttle back their production in an effort to cut global output by 2% from levels at the time. That, they figured, would reduce a glut of oil and lift prices.
It worked. But now that prices are back up again, big consuming nations like the U.S. have complained. The Organization of Petroleum Exporting Countries (OPEC) in the past has also been mindful that when prices get too high, demand can flag—hitting prices and their own revenue.
In addition, there have been worries about further production shortfalls amid big outages in Venezuela, as well as Washington’s decision to reinstate sanctions on Iran. That move will effectively cut off many international buyers of Iranian crude over the next few months.
OPEC has said it would be responsive to those worries. Saudi oil officials said Friday that the kingdom already boosted output last month by more than 100,000 barrels a day. That has raised Saudi overall output to about 10 million barrels a day.
A big question remains about how much OPEC, Russia and its oil-producing allies plan to boost output in total. Some price hawks in the group, eager not to weaken prices too much, have advocated small increases—or none at all.
Venezuela’s Oil Meltdown
Venezuela might have to declare force majeure on its oil exports as production plunges and its ports are unable to ship enough crude. The ongoing meltdown in Venezuela’s oil sector could tighten the oil market more than expected.
Reuters reported this past Tuesday that Venezuela is considering declaring force majeure. This is a legal declaration to basically excuse Venezuela form its contractual obligations. In other words, Venezuela is essentially prepared to say that it can’t supply the oil that it promised.
The utter collapse of the country’s oil production is obviously a big factor in Venezuela’s inability to ship enough oil. Output is down below 1.5 million barrels per day and falling fast. Furthermore, it seems unlikely that the sudden decline in exports will be resolved any time soon.
Oil production continues to plummet. Furthermore, refining and processing are also in freefall. Venezuela’s heavy oil needs to be upgraded before it can be exported. However, at least three PDVSA (the Venezuela state owned oil company) upgraders are in terrible shape. And the Petropiar upgrader, which PDVSA runs jointly with Chevron, is offline for maintenance.
“[PDVSA] has a critical structural problem that cannot be fixed in a few weeks or even a few months. The core problem is that Venezuela’s crude production has dropped far beneath the volumes we are contracted to deliver.” This according to a company executive. “We simply aren’t producing enough crude. And we don’t have the cash flow to compensate by purchasing crude from third parties to meet our supply commitments. Our greatest operational concern right now is that production continues to fall and our export supply volumes also will continue to decline as a result.”
Shale Country Is Out of Workers
Meanwhile, the recent increase in oil prices has been a boon to the #U.S. drilling industry.
Jerry Morales is the mayor of Midland, Texas. He is also a local restaurateur. Jerry is being whipsawed by the latest #Permian Basin shale-oil boom.
It’s fueling the region and starving it at the same time. Sales-tax revenue is hitting a record high. This has allowed the city to get around to fixing busted roads. However, the crazy-low 2.1 percent unemployment rate is a bear. As the proprietor of Mulberry Cafe and Gerardo’s Casita, Morales is working hard to retain cooks. As a Republican first elected in 2014, he oversees a government payroll 200 employees short of what it needs to fully function.
Midland is in the country’s busiest oil patch. There the rig count has climbed by nearly one third in the past year. As a result, drillers, service providers and trucking companies have been poaching for workers in all corners. The oil industry has such a ferocious appetite for workers that it’ll hire just about anyone with the most basic skills.
Furthermore, schools that teach how to pass the test for a CDL — commercial driver’s license — are packed. “A CDL is a golden ticket around here.” This according to Steve Sauceda, who runs the workforce training program at New Mexico Junior College. “You are employable just about anywhere.”
Jeremiah Fleming, 30, is on track to pull down $140,000 driving flatbed trucks for Aveda Transportation & Energy Services Inc., hauling rigs. “This will be my best year yet,” said Fleming, who used to work in the once-bustling shale play in North Dakota. “I wouldn’t want to go anywhere else.”