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Slowing US Crude Oil Output Could Impact US Refiners

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Oct. 26 2015, Published 6:37 a.m. ET

US crude oil output

December WTI (West Texas Intermediate) crude oil futures settled at $44.74 per barrel on October 1, 2015. Crude oil prices fell almost 10% from the peak of $49.63 per barrel in October 2015 to $44.60 per barrel on October 23, 2015. Likewise, the US crude oil output was at 9.17 MMbpd (million barrels per day) for the week ending October 2, 2015, according to the EIA (U.S. Energy Information Administration). For the week ending October 16, the US crude oil output was at 9.1 MMbpd. It’s the lowest US crude oil output level since September 2014.

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Impact 

US crude oil production fell for the eighth time in the last ten weeks. Crude oil prices rose almost 10% during the second week of October due to slowing US production. However, crude oil prices fell almost 60% since June 2014 due to oversupply concerns. The fall in crude oil prices is forcing high-cost US shale oil producers to slow down the US production. The slowing US production could push US crude oil prices higher over the long term. However, the global oversupply concerns will drag Brent crude oil—the global benchmark of crude oil—lower due to record production from the Middle East. The narrow spread between WTI and Brent will impact US oil refiners. Citigroup (C) downgraded US refiners like Western Refining (WNR), Alon (ALDW), CVR Refining (CVRR), and Northern Tier Energy (NTI).

How long will US production fall?

In its October STEO (Short-Term Energy Outlook) report, the EIA highlighted that US production could rise to 9.25 MMbpd (million barrels per day) in 2015 and fall to 8.9 MMbpd in 2016. The US crude oil output was at 8.71 MMbpd in 2014. The drilling activity reflects that the US production could fall over the long term. In the next part of this series, we’ll discuss US drilling and the rig count. The volatility in the crude oil market will impact ETFs like the iShares U.S. Oil & Gas Exploration & Production (IEO) and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).

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