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Slowing US Crude Oil Output Could Benefit Crude Oil Prices

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Sep. 28 2015, Updated 1:06 p.m. ET

US crude oil output 

The EIA (U.S. Energy Information Administration) reported that the US crude oil output fell by 18,000 bpd (barrels per day) to 9.117 MMbpd (million barrels per day) for the week ending September 11, 2015. Similarly, US production fell by 83,000 to 9.135 MMbpd for the week ending September 4, 2015. For the week ending September 11, 2015, crude oil production fell for the sixth straight week. In contrast, the US crude oil output peaked at 9.612 MMbpd in April 2015. This was the highest since the 1970s.

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Why US crude oil production is falling 

The long-term oversupply concerns led to the fall in the crude oil prices. Prices fell more than 50% since the peak level of $107 per barrel in June 2014. The fall in crude oil prices led to the fall in the drilling activity and crude oil production started to fall. However, technological advancement and the availability of cheaper borrowing facilities after the 2008 financial crisis led to the massive crude oil production. Higher crude oil prices of over $100 per barrel between 2010 and 2014 also supported the crude oil industry. All of these factors led to record crude oil production in the US in 1H15.

Impact

The current crude oil production is 3.20% more than the 2014 level of 8.838 MMbpd. The fall in crude oil production could support crude oil prices. However, Pioneer Natural Resources (PXD) and Cimarex Energy (XEC) increased the crude oil production in 2Q15 despite the falling crude oil prices. In contrast, companies like Energen (EGN) decreased the crude oil production due to falling crude oil prices. Pioneer Natural Resources and Cimarex Energy account for 4.15% of the Energy Select Sector SPDR ETF (XLE).

Energy ETFs like XLE and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) are also affected due to falling crude oil prices.

The crude oil prices, crude oil production, and rig count are heading in the same direction.

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