U.S. oil output will decline in 2016 for the first time in eight years as producers slash spending, the Organization of the Petroleum Exporting Countries said Monday, boosting demand for the cartel’s own crude and vindicating its strategy of defending market share over price.
In its closely watched monthly oil market report, OPEC slashed its U.S. oil production forecast by 280,000 barrels a day next year, leading to a decline of 60,000 barrels a day in 2016 instead of a previously predicted increase. The group said a fast depletion and expenditure cuts in tight oil, due to lower prices, were now driving down production faster than expected.
The news comes after industry group Baker Hughes Inc. last week reported a decline in the active U.S. oil rig count for the fifth straight week, dropping by nine to 605, the lowest since June 2010.
“This should reduce the excess supply in the market…resulting in more balanced oil market fundamentals,” OPEC said.
The American oil decline will also reduce overall supplies from producers outside the cartel, which will be down by 130,000 barrels a day next year, largely on reductions in the former Soviet Union, according to the report.