US crude oil production
The US weekly crude oil production resumed its downward trend for the week ending September 25, 2015. Production fell for the seventh time in the last eight weeks. The US weekly crude oil production fell by 40,000 bpd (barrels per day) to 9.096 MMbpd (million barrels per day) for the week ending September 25, 2015, according to the EIA’s (U.S. Energy Information Administration) sources. In contrast, the EIA reported that the US crude oil production rose by 19,000 bpd to 9.136 MMbpd for the week ending September 18, 2015. The US crude oil output peaked at 9.612 MMbpd in April 2015—the highest since the 1970s.
Why US production hit a record
After the 2008 financial crisis, the QE (quantitative easing) and zero interest by the US led to the availability of cheaper credit facilities. The cheap credit facilities led to huge investments into the oil and gas market because the US wanted to be self-sufficient. This led to technological innovation. Higher crude oil prices also led to these projects’ viability. As a result, technological and financial innovation led to the massive production of crude oil. The oil market was oversupplied by 2014. Then, crude oil prices started to fall due to oversupply and weak demand cues. However, crude oil demand rose by 2.3 MMbpd in 1H15 due to lower crude oil prices, according to Reuters’ consensus. The innovation brought down the drilling cost and improved the productivity despite falling crude oil rigs.
However, the turmoil in the crude oil market impacted oil producers’ margins like Hess (HES), Marathon Oil (MRO), and Apache (APA). Combined, they account 4.40% of the Energy Select Sector SPDR ETF (XLE). Oil and gas ETFs like XLE and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) are also impacted by falling crude oil prices. Some oil exploration companies suggest that the long-term lower crude oil prices and innovation in drilling and explorations brought US shale projects’ breakeven costs from $75 per barrel to $60 per barrel. The lower drilling costs are also one of the reasons. The costs are expected to fall to $50 per barrel in the long term. This means that if oil prices rise another 10%, we could see oil companies scaling up production. US production could rise again.
The current US production is almost 3% more than the level of 8.837 MMbpd in 2014. The record US production will continue to put pressure on crude oil prices. The EIA projects that the US crude oil output averaged 8.7 MMbpd in 2014. It’s expected to rise to 9.2 MMbpd in 2015. Finally, it’s expected to slow down to 8.8 MMbpd in 2016. However, the recent fall in the rigs suggests that US production could fall by 8.9 MMbpd by the end of 2015.