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Crude Oil Production is Down but Imports Are Up: WTI Outlook

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Crude oil production

The EIA (U.S. Energy Information Administration) estimates that crude oil production decreased by 9,000 barrels per day (or bpd) to 9.59 million barrels per day (or MMbpd) in the week ended June 26. Nevertheless, last week’s production levels remain ~14% higher than the previous year’s corresponding levels of ~8.44 MMbpd.

The four-week average production of 9.6 MMbpd last week was ~13.5% higher than the same period last year (~8.46 MMbpd). The four-week average didn’t change much week-over-week.

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What it means

Lower production data, meaning lower supplies, are bullish for crude oil prices and oil producers such as Apache Corporation (APA), Cimarex Energy (XEC), Murphy Oil (MUR), and Occidental Petroleum (OXY). All these companies are components of the iShares U.S. Energy ETF (IYE) and they make up 6% of the fund. But lower production could be negative for midstream MLPs (master limited partnership) such as Energy Transfer Partners (ETP), which make money by transporting energy.

Crude oil imports

Crude oil imports rose 748,000 bpd to average 7.51 MMbpd in the week ended June 26. The increase was led by imports from Venezuela, Kuwait, Canada, and Iraq, which collectively contributed 679,000 bpd.

An increase in imports, meaning more supplies, is bearish for crude oil prices.

Imports were 3.4% higher than last year’s levels during the same week. However, the four-week average of 6.99 MMbpd in the week ended June 26 was 3.5% lower than last year. It was ~0.5% higher than the previous week’s (June 19’s) average.

Supply forecasts for 2015 and 2016

According to the EIA’s June STEO (“Short-Term Energy Outlook”) report released on June 9, US crude oil production is expected to decline from June this year through early 2016. After that, growth is expected to resume. According to the EIA, crude oil production will average 9.4 MMbpd in 2015 and 9.3 MMbpd in 2016.

The next STEO is expected to be released on July 7.

The EIA also expects that the share of total US liquid fuels consumption met by net imports will decline to 21% in 2016—the lowest level since 1969. The share of net imports declined to an estimated 26% in 2014 compared to 60% in 2005. The EIA forecasts average net imports of 6.54 MMbpd in 2015.

In the following part of this series, we’ll take a look at demand trends for last week.

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