U.S. oil production jumped to 11.6 million barrels a day last week, a fact that will not be lost on OPEC and its partner Russia when they meet over the weekend. An OPEC and non OPEC committee meets in Abu Dhabi and while ministers will not take action they could recommend a cut in production. U.S. production now surpasses that of both Russia and Saudi Arabia, which ramped up ahead of expected U.S. sanction on Iranian crude which took effect this week.
Oil prices have cratered amid concerns of a global supply glut, and the jump in U.S. output to a point where it is now surpassing Russia, in addition to Saudi Arabia, only adds to these concerns. West Texas Intermediate futures are now down 20 percent from the near four-year high reached on Oct. 3.
U.S. production is up a stunning 2 million barrels a day from the same period last year, and 400,000 barrels from the week earlier, based on weekly U.S. government data. Weekly numbers are often revised, but the higher production figure is in line with growing U.S. output expectations. The U.S. government expects October production was 11.4 million barrels a day and expects production can grow to 12.1 million barrels a day on average next year.
"US crude oil production was recorded at a new record high, and the largest in the world by far, moving ahead of Russia and closer to the level Saudi Arabia might be able to reach in another six months," wrote Citigroup energy analyst Eric Lee.
OPEC's Joint Ministerial Monitoring Committee will meet this weekend in Abu Dhabi, ahead of next month's broader meeting in Vienna, and production levels are expected to be discussed. Saudi Arabia, de facto leader of OPEC, and Russia had agreed to raise production ahead of U.S. sanctions on Iranian oil, and the joint committee could decide to recommend lowering production.
The committee could make a recommendation that would be acted on at OPEC's December meeting. Reuters quoted sources saying OPEC and its allies could not rule out a return to production cuts next year.
Helima Croft, head of RBC global commodities strategy, said there's been increasing talk that OPEC and Russia are concerned about supply and may want to cut because they front loaded production ahead of U.S. sanctions on Iranian oil, which went into effect Monday.
President Donald Trump had called on Saudi Arabia to use its surplus capacity to add oil to the market ahead of the sanctions. Trump this week said he didn't want the Iran sanctions to drive oil prices higher. "If you're the Saudis and you are concerned, you have to figure out how far you can let this go," Croft said. "They did all of Trump's heavy lifting for him. They rushed in to put all the barrels on the market in anticipation of a U.S. policy."