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Why Doubts Linger about Sustainability of Crude Oil Bull Market

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Part 4
Why Doubts Linger about Sustainability of Crude Oil Bull Market PART 4 OF 6

US Crude Oil Production Hit Highest Level since 1983

US crude oil production hit the highest level since 1983 

The EIA (or US Energy Information Administration) reported that US crude oil production rose by 67,000 bpd (barrels per day) to 9,620,000 bpd between October 27, 2017, and November 3, 2017. The weekly production was at its highest since 1983 and pressured crude oil (USO) (UCO) prices on November 8, 2017. Production rose 0.7% week-over-week and 928,000 bpd, or 10.6%, from the same period in 2016. Record US crude oil production may lead to excess supplies and pressure oil (UWT) (DWT) prices.

US Crude Oil Production Hit Highest Level since 1983

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Why US crude oil production hit record

US crude oil production hit 8,428,000 in July 2016. It was the lowest level since June 2014. Production has risen 1,192,000 bpd, or 14.1%, since its low in July 2017. US crude oil production has risen due to an improvement in technology that has improved break-even and production costs of the shale producers compared to peers.

Meanwhile, US crude oil prices are near a 30-month high. Higher oil prices benefit the profitability of oil producers (XLE) (XOP) like Whiting Petroleum (WLL), Noble Energy (NBL), and Cobalt International Energy (CIE). They also support drilling and production activity and spur US crude oil production.

Estimates for US crude oil production 

Goldman Sachs predicts that US crude oil production could average 9.7 MMbpd by the end of 2017. It would be the highest production in the last three decades. The EIA estimates that US production will average 9,230,000 bpd in 2017 and 9,950,000 bpd in 2018. Production averaged 9.4 MMbpd in 2015 and 8.9 MMbpd in 2016.

Impact  

Weekly US crude oil production hit 9,600,000 bpd in 2015, which was the previous record. Consequently, crude oil prices tested their 13-year low in the next few months.

The US crude oil production annual average was at 9,637,000 bpd in 1970. Production is expected to hit a new annual average record in 2018, which could offset some of the benefits of the current production cuts. Record production could also pressure crude oil (BNO) (DBO) prices.

Next, we’ll cover how US gasoline inventories affect oil prices.

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