Shale, Oil Sands, and OPEC Output All on the Rise

Russia is one of the few nations to post a decline in production for June. File Image / CC0 / Pixabay

If an informal review of crude production news on Monday is any indication, the only country of note that has posted a decline in output is Russia; otherwise, U.S. shale and Canadian Oil Sands figures are up, and data reveals that the Organization of the Petroleum Exporting Countries (OPEC), despite its commitment to reducing the global glut, quietly boosted output in June.

Bloomberg reports that total compliance within OPEC has slipped below 100 percent to levels seen in February, thanks to increased production in Angola, Iraq, and Saudi Arabia; Iraq is the worst offender with a compliance rate in June of only 28 percent.

As for non-members participating in the cutback initiative, Kazakhstan pumped considerably more than it should have in June due to bringing its new Kashagan on line, leading to a compliance rate of minus 145 percent.

On the other side of the world, U.S. shale continues to make gains at the expense of a market rebalance: the U.S. Energy Department in a report released Monday stated that production is forecast to rise for an eighth consecutive month, climbing 112,000 barrels per day (bpd) to 5.5 million bpd in August.

The Energy Information Agency added that American producers drilled 1,026 wells and completed 872 in June, an increase of 154 drilled uncompleted wells (DUCs) from May for a  total of 6,031, the highest level of DUCs on record.

This is significant for those who abide by forecasts from Goldman Sachs: the bank earlier this month warned that oil prices could fall below $40 per barrel if investors don't see evidence that U.S. production is slowing.

Canada is doing its part to boost global inventories: according to IHS Energy, with 500,000 bpd scheduled to enter the market over the next two years, oil sands will be the second largest contributor to supplies after the U.S.

The reason for the Canadian growth is a familiar one: "You see them really driving down costs and one of the big ways is optimization," said Kevin Birn, a director at IHS Energy, adding, "In an era of low oil prices, operational excellence is going to be the mantra."

Devon Energy Corp., Suncor Energy Inc., and Cenovus Energy Inc. have all reportedly ramped up operations north of the 49th parallel, and Rob Dutton, senior vice president of Canadian operations at Devon, told Bloomberg, "The margin is still healthy and there is still a great deal of cash to be generated from these assets."

In the midst of all this, Russian production in June dropped slightly to 10.9 million bpd, achieving 94 percent of its promised reductions under the OPEC agreement.

However, while declines from Russia and other smaller nations are a welcome turn of events, they appear to be outweighed by countries intent on pumping full-out; in addition to Canada, Kuwait recently became a source of concern when it revealed it plans to increase capacity to 4 million bpd by 2020 and keep it at that level until 2030.