Three reasons why the US is now the world’s largest oil producer
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Three reasons why the US is now the world’s largest oil producer

14 Sep 2018 (Last Updated September 14th, 2018 16:33)

The US is the world’s largest oil producer, thanks to a decline in production costs and faltering competitors.

Three reasons why the US is now the world’s largest oil producer

The US is the world’s largest oil producer, thanks to a decline in production costs and faltering competitors.

It overtook Russia during June and August 2018, and had already surpassed Saudi Arabia earlier in the year. Booming shale oil production enabled the domestic industry to reach 10 million bpd this year for the first time since the 1970s.

For the remainder of 2018 and for at least 2019, US supply is predicted to maintain the number one slot according to the EIA. Yet the impact the government and US based oil majors can have on the international market is likely to carry on getting bigger.

Even though production growth is predicted to slow, the US will account for over half of worldwide expansion in the next five years according to the International Energy Agency (IEA).

The key reasons behind this include Saudi Arabia’s cuts, the US being outside OPEC, and cost efficiencies in drilling.

Saudi Arabia’s influence declining

Assuming the top spot demonstrates the influence of the world’s largest economy on oil, the rising expense of Saudi Arabia is having a direct impact.

Reports suggest that Saudi Arabia was seeking investment from the Russian Direct Investment Fund, Russia’s sovereign wealth fund, in the initial public offering (IPO) of Aramco, the Saudi state oil producer. This highlight’s the Kingdom’s uncertainty regarding its future in oil.Under such circumstances, rising US oil flows exacerbates the gains in influence on the global oil industry the country has gained in the recent past.

Saudi Arabia trimming production during July helped enhance the influence of the US on global oil supplies.

The US is outside OPEC

Not in the bounds of OPEC, US oil firms are free to choose to what extent capacity growth is pursued, eroding the influence of other oil producing states. The US is also relatively stable, while several significant OPEC producers face chronic instability.  While oil producing states such as Venezuela and Iran saw production decline, OPEC levels were boosted by Saudi Arabia and Nigeria in August 2018.

Iraq and Libya both increased production levels, but Iraq is experiencing civil unrest around Basra where its oil production facilities are, and Libya remains chronically unstable. Iran faces US sanctions virtually destroying its exports, while Venezuela also faces an economic crisis which has led to a collapse in production.

Drilling costs have improved

Oil majors operating in the US have achieved the expansion thanks to far improved cost efficiency drilling in the Gulf of Mexico.

Conventional wisdom dictates conditions in the Arabian oil nations are somewhat easier and cheaper than those to be found in the Gulf of Mexico. Yet costs, however, have come down substantially, allowing oil from the Gulf to be drilled at much more competitive prices.

Gone are the ‘gold plated’ bespoke rigs. Oil majors are sharing rig designs between oil fields, adapting them to suit local conditions.

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