This is no more a news. The Organisation of Petroleum Exporting Countries, (Opec) does not hold complete sway on the oil markets. Instead, the United States is the new crude king. Some even cite the US, and not Saudi Arabia, as the new global swing producer.

The US owed its current eminence in the energy world to its growing shale output. Advances in hydrocarbon recovery, courtesy horizontal drilling and hydraulic fracking, have expanded production into unconventional, tight oil shales. This has helped Washington realise, the long-held pipe dream of energy independence.

Now, the US can take decisions and advance its strategic objectives without taking into much consideration, its energy dependence on the oil-rich Arab states. All this is a headache to the Opec!

The growing eminence of the US in the world of oil largely owes its existence to output from the Permian Basin in the south-western parts of the country. Texas’ Permian has been the world’s fastest-growing major oil region over the past few years, growing 72 per cent to 4.2 million barrels per day (bpd).

Consequently, in less than eight years, the total US oil production has climbed, from under 6m bpd to more than 12m bpd. But a hint of a cloud is now hovering over the basin and its productivity. Question about the continued output growth of Permian are coming to fore.

Although it may still be premature to conclude, yet some in the industry are beginning to say: The Permian promise is beginning to shrink.

Oil output there is still at its peak, but output growth is slowing down. Producers in the oil-rich shale basins in the US are tempted to dial back growth plans. Constraints are manifold: pipeline limits, reduced flow from wells drilled too close together, low natural gas prices and high land costs.

But the most consequential is that shale-well production falls off at such a high rate — as much as 70pc in the first year — that one needs to keep spending cash on new wells just to maintain output.

In its recent Drilling Productivity Report, each of the six regions tracked by the US Energy Infor­mation Adminis­tration (EIA) — Anadarko, Appa­lachia, Bakken, Eagle Ford, Haynesville, Niob­rara, and Permian — still showed a year-over-year increase in oil production. However, if one looks at the year-over-year gains over the past few years, there has been a noticeable slowdown in oil production growth.

This slowdown is particularly pronounced in the Permian Basin as growth has been in rapid decline since peaking a year ago. Recent estimates say that year-over-year production is growing half at the rate from a year ago. Most independent producers are thus inclined to cut their capital budgets.

In April, it was reported that the volume of crude being pumped out of Texas saw its first monthly dip in a year. Oil-well productivity in Texas’s Permian basin — the country’s largest oil field — was falling.

In the week to July 26, the US oil and gas rig count fell by eight as the production fell to its lowest levels since October 2018. In the week ending July 19, US production fell sharply to 11.3m bpd, more than 1m barrels down from the all-time high.

The total number of active oil rigs in the US fell by three during the week, reaching 776, Baker Hughes reported. The number of active gas rigs decreased by five to reach 169. Year-on-year, the combined oil and gas rig count was down 102.

Consequently, job losses have also hit the industry. Amid the slowdown, Halliburton is cutting its workforce and shelving fracking equipment. The oilfield services giant said it was cutting its North American workforce by 8pc.

“North America land remains a challenging environment,” Olivier Le Peuch, Chief Operating Officer and soon-to-be CEO of Schlum­berger also emphasised in an earnings call on July 19.

Does all this mean that Opec’s woes are coming to an end and that oil price would start climbing soon? No, it seems, at least for the time being global oil consumption remains the wild card in the entire equation as all the pointers continue to present a dismal global demand outlook.

Opec woes are far from over.

Published in Dawn, August 4th, 2019