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Will US Crude Oil Production Overshadow Inventory Draws?

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Will US Crude Oil Production Overshadow Inventory Draws? PART 1 OF 5

Crude Oil Futures fell Due to Oversupply Concerns

US crude oil futures 

September WTI (West Texas Intermediate) crude oil (RYE) (USO) (UCO) futures contracts fell 1.6% and settled at $46.78 per barrel on August 16, 2017.

US crude oil prices fell for the third straight day. Prices fell due to the following:

  • US crude oil production is at 9.50 MMbpd (million barrels per day) for the week ending August 11, 2017—the highest level in two years.
  • There was a rise in gasoline and distillate inventories last week.
  • Libya’s crude oil production at the Sharara oilfield has restarted. Libya’s crude oil production is at a four-year high.
  • The US dollar (UUP) is near its three-week high.

Crude Oil Futures fell Due to Oversupply Concerns

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Libya’s Sharara oil field production

On August 16, 2017, Libya’s National Oil Corporation said that crude oil production at the Sharara oilfield is back to the normal level. The Sharara oilfield is Libya’s largest oilfield. Production was at 280,000 barrels per day before the security concerns.

Any rise in crude oil supplies in the oversupplied market has a negative impact on crude oil prices, oil and gas companies, and energy ETFs. US crude oil prices have fallen 17.7% YTD (year-to-date) due to bearish drivers. The top five energy equity ETFs YTD ranked by assets under management are mentioned below.

  • The Energy Select Sector SPDR Fund (XLE) has fallen 15.4% YTD.
  • The Vanguard Energy ETF (VDE) has fallen 17.5% YTD.
  • The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has fallen 28.4% YTD.
  • The iShares U.S. Energy ETF (IYE) has fallen 16.6% YTD.
  • The VanEck Vectors Oil Services ETF (OIH) has fallen 33.9% YTD.

US crude oil (IEZ) (XES) prices are near a four-week low. They have risen ~2.2% from their ten-month low on June 21, 2017. However, crude oil prices might not sustain the rally due to the following reasons:

  • There’s an expectation of a fall in gasoline demand after the summer ends.
  • Crude oil production could rise in Libya, Nigeria, Canada, Brazil, and the US.
  • Vehicles are becoming more fuel efficient.

September crude oil futures are trading below their 100-day and 200-day moving averages. It suggests that crude oil (PXI) (USL) prices could trade lower in the near term.

Series overview

In this series, we’ll look at US crude oil inventories, production, and gasoline and distillate inventories.

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