And how a Trump appointee could keep that trend going.
Is Saudi Arabia losing its grip on the energy market? The kingdom, a founding member of OPEC, has aimed to keep oil prices elevated. But it’s struggling to keep allied countries oil production in check – and a new US Administration could shake things up even further.
Matt Smith, energy analyst for Kpler, spoke with Texas Standard about what’s behind the shift and how a Trump appointee could mean more U.S. oil production. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: So why has OPEC+ been unable to unwind production cuts?
Matt Smith: Well, it’s been a number of factors.
So we have seen U.S. production climbing. The U.S. is the largest oil producer in the world now by quite a margin. So the U.S. produces 13.5 million barrels a day, while Saudi Arabia and Russia are only around 9 million barrels a day now as they’re trying to keep that production reined in to support prices.
But it’s also supply growth from other non-OPEC countries which has really kind of boosted total supplies here.
So we’ve seen increasing production from Canada, Brazil, Guyana and Norway. But at the same time, lower demand growth is slowing on a global basis. So we are still consuming more oil year after year, but the pace of that growth is slowing.
So in a nutshell, you’ve had OPEC, which is trying to support prices, has taken oil off the market. And then because of this slowing demand growth and then supplies increasing from elsewhere, they’ve essentially been backed into a corner and don’t have any room for them to put more oil onto the market.
Well, you mentioned the U.S. oil production and just how much where pumping out. I seem to remember that one of President-elect Trump’s talking points was “drill, baby, drill” and to increase production. So how does this tie into what the new administration might do?
One key nomination that’s been made is for treasury secretary with Scott Bessent. And so he’s got a key goal here. It’s called the 3-3-3 plan. And so he’s looking to cut the budget deficit to 3% of GDP by 2028. It’s currently about 6.5%. So essentially meaning that the U.S. spends less and takes enough taxes to cause us not to have such a large deficit.
The second “3” stands for GDP growth – so, economic growth. We’re already around 2.8%. So we’re close to that.
But the third one is the most important one for our conversation here. The third “3” is he’s looking to get an extra 3 million barrels a day of oil production in the U.S.
Now, the devil is in the details here because that’s barrel of oil equivalent. So that includes natural gas and natural gas liquids, such as propane. And so, yes, we could see that possibly achieved, but it would be including natural gas as well as oil, as well as propane and butane, all those other things.
Now, I have had enough conversations with you, Matt, that I know that these things come down to the basic supply and demand. So where does this leave us for going into next year? What are the key themes for demand and supply and what’s expected for oil prices?
On the demand side of the picture this year, China has really struggled. You know, we’ve got used to seeing really strong growth and really strong demand growth for oil out of them. And that has really hit the brakes this year.
That theme is going to continue next year as well. So that will really weigh on that oil demand growth side of the picture on the supply side. The U.S. is going to increase production a bit, maybe 3 or 400,000 barrels a day on average year on year. And then we’ve got Brazil, Canada and Norway should also help.
So where this leaves us – kind of around the $70 for WTI, that U.S. benchmark, which really is actually a sweet spot for prices because it’s high enough to encourage U.S. producers to keep producing and turning a profit while prices are low enough to keep prices at the pump in check.
So as long as gasoline prices around sort of $3.50 a gallon on the national average, consumers won’t be complaining. And that’s kind of where we should be with that oil price.
There’s recent developments in Syria that have really escalated, and that’s impacted Iran at the same time. How does all of that complicate things?
Well, it is causing oil prices to rally a bit – not because Syria is large oil producer. It isn’t. But because the uncertainty it’s bringing to the Middle East, there is a little that’s causing some concerns there.
All that said, the toppling of Bashar al-Assad and the Syrian regime, there is a body blow to Iran and to Russia as well, because those are two key allies and financial backers of Assad. So it’s really a punch in the gut for them, too.
