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OPEC Cut Brightens Prospects for U.S. Energy Producers

December 6, 2016

For the first time in 8 years, OPEC members have voted to reduce their collective output by 1.2 million barrels per day. The cut amounts to an approximately 3.5% reduction in OPEC production and, combined with reductions in Russian output, will be sufficient to trim total global oil production by about 1%. The immediate reaction in energy markets, with prices surging upward, no doubt gives OPEC renewed hopes of relevance in a global energy market that has seen several non-OPEC members emerge as key producers.

First on that list, of course, is the United States, where improved production techniques have led to a dramatic increase in output of both oil and natural gas in recent years. Having weathered the slump in energy prices, the producers left in the market today are in a strong position to compete globally. According to Rystad Energy, “The breakeven cost per barrel, on average, to produce Bakken shale at the wellhead has fallen to $29.44 in 2016 from $59.03 in 2014”, a remarkable move in such a short time span. While it may take up to a year for conditions on the ground to improve for U.S. producers, the cuts from OPEC and Russia are clearly good news for places like North Dakota and Texas, which can expect to see increased activity going forward.

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