Related: OPEC Decision Doesn’t Intimidate
For the first time in eight years, OPEC has agreed to reduce oil production, announcing last week that it will cut approximately 1.2 MMBOPD to 32.5 MMBOPD effective 1 January 2017.
The decision is great news for energy-producing regions in the United States including Texas and the Eagle Ford Shale Play. Texas has lost over 100,000 jobs since 2014 as crude pricing remained low, and this agreement should help create more jobs and reverse some of the stress of the last two years.
Analysts predict that this deal will remove 1.5 million barrels of oil per day from the global market, causing an increase in the price of crude oil, possibly moving closer to the $60/bbl range. Prices jumped immediately after the announcement, with Bloomberg reporting a per barrel price of $52.08 this morning.
One of the first things shale producers will likely do is to begin to attack their inventory of DUCs that have been waiting for prices to recover. There are currently 5,155 DUCs in the U.S., with one-quarter of them in the Eagle Ford, according to the Energy Information Administration.
During a press conference, OPEC responded to comments that this agreement will cause an increase in price that will benefit shale producers:
- The OPEC deal was unanimous
- The deal is initially for six-months deal, but OPEC could extend by another six months
- The cuts will begin in January with cut OPEC production to 32.5 million barrels daily
- Saudi Arabia is making the biggest cut, agreeing to reduce its production levels by nearly 500,000 barrels a day to about 10 million