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Crude Oil Production Levels Didn’t Contribute to Inventory Builds

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Crude oil production levels are up

According to the EIA’s (U.S. Energy Information Administration) Weekly Petroleum Status Report, US weekly crude oil production slightly fell by 0.01 MMbpd (million barrels per day) to settle at 9.2 MMbpd for the week ended January 22, 2016. The current crude oil production levels were just 0.08% higher than the production levels in the same period last year.

The crude oil imports also slightly fell by 0.17 MMbpd, settling at 7.6 MMbpd for the week ended January 22, 2016. The current crude oil imports were 0.18 MMbpd, or 2.5%, more than during the same period last year.

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US crude oil production fell last week

As discussed in the first part of this series, the crude oil inventory rise is mostly derived from lower crude oil demand, as the fall in production levels didn’t contribute to the inventory builds. The production levels were just 0.8% higher than in the previous year, but as per the demand factor, production levels were still high.

Ahead of summer refinery maintenance season, the refineries gradually decreased their production levels, but crude oil production levels were almost stable. If these production levels continue for a long time, we will see further inventory builds in the upcoming weeks.

The heavy production levels will have a positive impact on the refineries’ operational costs. However, this will have a negative impact on crude oil prices. Lower crude oil prices will decrease the revenues of the crude oil producers such as Apache (APA), ExxonMobil (XOM), EOG Resources (EOG), Continental Resources (CLR), Murphy Oil (MRO), and Devon Energy (DVN). Price fluctuations in the crude oil markets also impact ETFs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) and the Vanguard Energy ETF (VDE).

EIA estimates and projections

The EIA (U.S. Energy Information Administration) expects US crude oil production to reach 8.5 MMbpd in November 2016 from 9.2 MMbpd in December 2015. Crude oil production is expected to remain stable at 8.5 MMbpd in 2017. This level of production would be 1.2 MMbpd below the peak production levels in April 2015. The crude oil production levels in April 2015 were the highest monthly production levels since April 1971.

In the next article, we’ll talk about the impact of the inventory builds on crude oil prices.

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