Oil production by US drillers has slid by 5.8% over the past year according to statistics from the Energy Information Administration (EIA).

The decline is evidence that the strategy being pursued by the Organization of Petroleum Exporting Countries (OPEC) is having the desired effect. The US is now experiencing its largest fall in production since September 2014 with production falling by 113,000 per day last week.

“That means US drillers are producing 8.825 million barrels a day while OPEC producers have maintained output. It’s taken a lot longer than they would have liked but there is no doubt that the results will be welcomed in Riyadh,” said Gordon Li-Chao, chief economist at Fox Capital Partners.

OPEC has flat refused to cut production to support prices electing instead to defend its 40% market share. The high-cost US shale oil industry generally needs oil prices at elevated levels in order to break even or make a profit. The deliberate glut created by Saudi Arabia and other OPEC countries has helped to suppress prices causing severe financial difficulties for US producers many of whom have borrowed heavily in order to finance their operations.

“The fallout from this is being felt on Wall Street. One only has to look at the amount of money being set aside to cover bad loans made to oil producers by banks like Bank of America to see the damage the OPEC strategy is having,” concluded Li-Chao.

Fox Capital Partners says it expects oil prices to have recovered to $50 a barrel by the end of the year citing an easing in over-supply and further weakness in the US dollar.

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