OPEC lowers production quotas on crude oil

Journalist

Stacked rigs are seen along with other idled oil drilling equipment at a depot in Dickinson, North Dakota June 26, 2015. Since November, the Saudi Arabian-led OPEC cartel has held to a policy of unconstrained output, an approach many suspect is designed to flood global markets with more crude, push prices lower and punish rivals, including North Dakota, the second-largest U.S. oil producer. Picture taken June 26, 2015.

After the Organization of the Petroleum Exporting Countries (OPEC) this week announced it will reduce production of crude oil by 1 million barrels a day, the obvious question in northwest North Dakota is how that decision might impact oil production in the Mondak region.

As was the case when OPEC announced production cuts earlier this year, it's a wait-and-see scenario.

OPEC officials said reducing oil production is an effort to maintain higher prices of the commodity, which typically has traded above $70/barrel and below $100/barrel over the past year or more.

Although the Biden Administration has publicly stated it would like to see oil prices below $70/barrel to maintain lower gas prices for U.S. consumers at the pump, the oil industry prefers to see prices in the $85/barrel range to sustain high employment among oil workers and to justify drilling costs.

The average per-gallon price of refined gasoline is $3.55, according to data from the AAA auto club, as recently cited by Associated Press (AP).

A few months ago, when OPEC announced a similar crude-oil production reduction, Lynn Helms, director of the N.D. Department of Mineral Resources, said the move caught oil producers off-guard.

During a February 2023 Director's Cut media conference, Helms said an attempt by short-sellers to drive down U.S. gasoline prices backfired after OPEC announced production reductions.

"Crude oil inventories are slightly above average in the U.S. and worldwide," Helms said in February. "But the big news ... is the announced surprise [production] cuts by OPEC."

Four months later, as OPEC again announces crude-oil production limits, it is unclear how those cuts will impact North Dakota and the Mondak region.

Active oil-well counts in N.D. were already down in March, according to data from the state's Department of Mineral Resources. Oil production was down approximately 36,000 barrels a day in March, the department reported.

Most of the decline in N.D. oil production was attributed to adverse cold weather in early and late March, not because of fall-out from OPEC output reductions.

However, Williams and McKenzie counties also enjoy robust natural-gas drilling activities that are not necessarily impacted by OPEC's decision to reduce oil production quotas.

From an historic perspective, two years ago when OPEC set similar oil-production limits, N.D. Gov. Doug Burgum placed much of the blame on U.S. President Joe Biden.

"This is another glaring example of the Biden administration's failed and misguided energy policies, including issuing executive orders restricting U.S. energy production and transportation, putting up red tape and creating regulatory roadblocks," Burgum said in 2021, after President Biden implored OPEC to raise production of crude oil.

"Instead of urging foreign nations to boost oil output to reduce U.S. gasoline prices, the administration should be encouraging and supporting states like North Dakota to increase oil production to pre-pandemic levels to reduce our reliance on foreign energy sources," Gov. Burgum said. "We can and should be selling energy to our friends and allies, not buying it from nations that oppose U.S. interests. The White House's call for OPEC to 'do more' to support global recovery and reduce the price at the pump is wrong for American workers, consumers and our nation's energy security."

In his defense, part of Biden's motivation for encouraging OPEC not to cut oil production is to keep inflation under control, since higher production results in larger supplies of oil, which translates into lower gas prices at the pump for U.S. consumers.

OPEC nations like Saudi Arabia rely almost solely on oil exports to sustain their own economies, placing their motives for limiting production of crude oil in question.

Caught in the middle are N.D. oil-drilling companies and workers, who benefit from more drilling and higher prices, as well as state and local government agencies that enjoy revenues from taxes on oil production.

Journalist