Analysis: How rising US oil output could erode OPEC’s market share

The Organization of the Petroleum Exporting Countries and its allies are wary of losing further market share to rising oil production in the US, according to a Reuters report. 

Rising oil production from the US is also likely to hamper OPEC+ efforts to support oil prices. 

Also, the prospect of more US production in the coming years could mean less room for the cartel to go ahead with its planned production increases later next year.

OPEC and its allies pump almost half of the world’s oil production. The cartel delayed its planned output increase next year as global demand remained weak. 

OPEC’s decision had more to do with supporting crude oil prices. Prices had hovered around $70-$75 per barrel mark over the last few months. 

“I think a return of Trump is good news for the oil industry, with possibly less stringent environmental policies,” a delegate from a US ally OPEC+ member told Reuters.

“But we may see higher production in the United States, which is not good for us.”

Steep OPEC production cuts

The group earlier this month extended its steep voluntary production cuts of 2.2 million barrels per day by three months till the end of March. 

The cartel was set to unwind some of these cuts from January. However, a bleak demand situation, particularly in China, and falling oil prices prompted it to delay the increase.

Since September, OPEC has extended these voluntary cuts, majorly borne by the likes of Saudi Arabia and Russia, multiple times.

The cartel has also extended its long-standing 3.65 million barrels per day of production cuts till the end of 2026. 

These extensions point to an extremely fragile oil market, with demand stagnating in the top importer, China. 

Meanwhile, OPEC+ has a history of underestimating gains in US oil production. This was evident during the US shale oil boom more than a decade ago, which enabled the country to become the top producer.

A further increase in production from the US, while OPEC continues adhering to steep output cuts could undermine efforts for higher oil prices.

This is expected to take a toll on the cartel’s revenues as most members in the alliance rely on revenues from oil exports. 

What does Trump mean for US oil supply?

Experts see less impact of a Donald Trump presidency on US oil production in the near term. 

“US oil producers will be more price dependent and with the global market well supplied in 2025, there will be little incentive for US oil producers to significantly increase drilling activity,” Warren Patterson, head of commodities strategy at ING Group, said. 

According to a Dallas Fed Energy survey and the Kansas Fed Energy survey, producers in the US need oil prices to trade around $64 per barrel for maintaining operations.

The price of US benchmark West Texas Intermediate crude oil was around $70 a barrel.

According to the US Energy Information Administration, crude oil production is expected to average around 13.5 million barrels per day in 2025, which is a record. 

However, the growth in production will be much slower compared to the levels seen prior to the COVID-19 pandemic. 

Patterson said:

In the medium to longer term, a Trump presidency could provide upside through less regulation (which would help lower production costs), fast-tracking approvals for pipeline infrastructure (which will help with persistent bottlenecks in the supply chain) and the reversal of some of President Joe Biden’s policies with regards to federal land leases.

The Biden administration reduced lease sales on federal land and also increased royalty payments and bond requirements for production on federal land. 

“If we compare the number of new leases issued during Trump’s first three years in office, it totaled more than 4,000,” Patterson added.

In Biden’s first three years, new lease issuances totaled a little over 1,400, significantly lower than that during Trump’s first three years.

Global supply on the rise

The International Energy Agency last week estimated that global oil supply is likely to rise by 1.9 million barrels per day in 2025. 

Out of this, 1.5 million barrels of oil per day of growth is expected from the likes of the US, Guyana, Argentina, Canada, and Brazil, the IEA said.

IEA also sees oil supply in the US rising by 3.5% next year, faster than that of OPEC+. 

Against this backdrop, a Trump presidency could further boost production in the coming years, taking a larger market share from OPEC and its allies. 

However, “The US has no spare capacity,” Bob McNally, president at Rapidan Energy Group and former White House official told Reuters.

How much the US will drill depends more on decisions made in Vienna than in Washington.

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