HOUSTON (CN) – U.S. oil prices fell below $50 per barrel Thursday even as OPEC and 10 other oil-producing countries agreed to extend production cuts in an effort to prop up prices, further proof of the global oil cartel’s waning influence.
The Organization of the Petroleum Exporting Countries’ deal reached in Vienna on Thursday extends until March 2018 an agreement it made late last year to cut oil production by 1.8 million barrels per day. That deal took effect Jan. 1.
Saudi Arabia is the 14-member cartel’s top producer. Its energy minister Khalid al-Falih reportedly said he believes the deal will help reduce the amount of oil in storage tanks around the world to its five-year average by the end of the year.
While substantial, the 1.8 million daily barrels OPEC and its allies will keep off the market is equivalent to about 2 percent of global oil production.
The move is seen by analysts as a gift to U.S. shale drillers who can step in to fill the production void, having made their operations efficient enough to turn a profit with prices as low as $40 per barrel in the Permian Basin in West Texas, which has eclipsed the Eagle Ford Shale in South Texas as the state’s hot drilling zone.
The U.S. Energy Information Administration estimates U.S. oil production could increase to more than 10 million barrels per day next year, up from 8.9 million in 2016.
Crude prices are down from a high of $114 in June 2014 due to a glut caused by U.S. production reaching record levels in 2015 as hydraulic fracturing, or fracking, technology let drillers tap oil in shale, coupled with Saudi Arabia’s refusal to cut production to maintain its market share and put small U.S. drillers out of business.
The Saudi strategy worked: 123 North American oil and gas producers have filed for bankruptcy since January 2015, according to an April 27 report from the Haynes and Boone law firm, which tracks energy company bankruptcies.
But the price of crude got too low even for oil-rich Saudi Arabia, prompting it to push the OPEC production cuts that started in January.
The oil crash brutalized Texas, costing 98,000 oil-industry workers their jobs. But a recovery is in the works thanks to evolving U.S. drilling technology that lets producers squeeze more oil from wells.
As of Friday, there were 908 active oil rigs in the United States, 504 more than in May 2016, as tracked by Houston-based oil service firm Baker Hughes.
For each rig, oil companies rehire about 24 workers and spend millions on services and equipment made in Houston, according to the Houston Chronicle.
Despite Saudi Arabia’s confidence that the latest OPEC deal will stabilize and lift oil prices, analysts aren’t convinced.
“A nine-month extension just isn’t enough to really lift oil prices as we’ll continue to see U.S. shale fill the gap. Having said they’d do whatever it takes, OPEC is looking a bit toothless now. Faced with kind of glut and the scale of the market, the cartel would be better off cutting a lot deeper but for less time than trying to prolong fairly timid cuts,” Neil Wilson with ETX Capital, a United Kingdom commodities trader, told the BBC.
Several countries that don’t belong to OPEC signed onto Thursday’s deal: Russia, Azerbaijan, Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Oman, the Republic of Sudan, and the Republic of South Sudan.
West Texas Intermediate, the U.S. benchmark, was trading near $49.50 per barrel at noon on Friday. Brent, the international benchmark, hovered around $52.