US output will negate most of extended OPEC cuts

Significance

The US shale oil industry has mounted a comeback over the past six months. After a deep recession brought on by plunging oil prices starting in mid-2014, the sector is growing again as prices have stabilised and US oil output is rising, approaching record levels once again. OPEC’s May 26 meeting was a potential threat to that recovery, but the cartel’s decision to hold the line on its regime of production cuts ensures continued growth for US oil.

Impacts

• US oil exports will rise this year on higher output from the Permian oilfield, which is well connected to Gulf Coast export facilities.
• An uptick in drilling will contribute to the overall tightening of the US labour market, pushing up wages and oilfield services costs.
• Restored royalty flows will ease some fiscal stress on oil-dependent state governments such as Alaska and North Dakota.