Dozens of individual countries have experienced a fall in output, cumulatively adding up to 2.9 million b/d. Three contribute more than half: the USA, down 1.0 million b/d (mostly L48 conventional and tight oil operating at the marginal cost of global supply); Mexico, down 0.35 million b/d (investment cuts by Pemex); and China, down 0.26 million b/d (NOCs focusing on value over volume).
But there have also been relative winners too, offsetting the losses. A handful of producers have managed to increase production by a total of 1.1 million b/d. Among these few, Russia up 0.45 million b/d is much the biggest (margins boosted by the weak rouble); with Canada next, up 0.17 million b/d (execution of incremental oil sands projects).
Limitations to producing fields
The economic imperative for producers is still to generate cash flow, but there are limits to how far producing fields can be 'stretched'.
The lack of upstream investment outside US tight oil will start to tell. Production declines accelerate from 2020 across most of non-OPEC.
OPEC has filled the near-term gap, increasing production by a net 2 million b/d since 2014. Iran, Iraq and Libya are all substantially up as they rebuild supply. The rest of OPEC is down, mainly a result of the production cuts.
The combination of lower production and a low price is proving difficult for OPEC members. Fiscal breakeven for Middle East producers is in excess of US$70/bbl on average, even with government spending restraint. Any short fall is funded by running down official reserves, tapping international capital markets, or finding tax revenues from elsewhere which takes time.
Saudi Arabia's treasury reserves, for example, have fallen by one-third from US$0.75 tn in 2014 to US$0.5 tn in May 2017 (IMF/SAMA). There is still much in the kitty (and borrowing is also an option), but were Brent to remain at today's price, we estimate reserves would run out by the mid-2020s, all things equal.
The incentive for OPEC to bring about market rebalancing and firm up prices is all too clear. At the same time, the stats underline the importance of the economic restructuring underway should market tightening remain elusive and lower-for-longer persists.