Since the oil price collapse, global oil production has risen, not fallen. Since the fateful Nov. 27, 2014 OPEC meeting, aggregate production from the U.S., Saudi Arabia, and Iraq is up 2 MMbop/d - far more than demand. November is also when the U.S. inadvertently became the swing oil producer. Prices have not yet fallen far enough or for long enough for an appreciable U.S. supply adjustment to occur. It may not be far off, especially if oil prices fall further with new Iranian supplies, says a study from IHS Energy that notes: 1. Oil prices will be under downward pressure until there is evidence the glut is shrinking. This won't happen quickly unless prices fall even further from recent levels. 2. For a decline in U.S. output to appreciably erode the global surplus, prices would need to range in the low $40s or less for several months. In 2014, production from wells with a break-even cost of around $60 for WTI produced enough oil to offset declines from pre-2014 wells and keep U.S. production flat with 2013. The rest of last year's incredible growth came from higher-cost wells. But costs are lower this year by about 20%. A break-even cost of $60 in 2014 is now in the upper $40s per barrel for WTI. This is why only lower prices will catalyze a faster supply adjustment. 3. With lower prices, U.S. production in the second half of 2015 would record its first significant decline in seven years. A severe drop in prices, lasting several months, would increase the likelihood of a significant price increase in 2016-17. Production growth from elsewhere, including Saudi Arabia and Iraq, is unlikely to keep pace with demand growth if U.S. production falls appreciably.
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