US crude oil production
Yesterday, the EIA (U.S. Energy Information Administration) reported that US crude oil production fell marginally by 14,000 bpd (barrels per day) to 9.2 MMbpd (million barrels per day) for the week ending January 22, 2016. In contrast, the four-week average for US crude oil production increased by 5,000 bpd to 9.2 MMbpd for the same period. US crude oil production peaked at 9.6 MMbpd in 2015 due to cheaper credit facilities, higher oil prices between 2010 and 2014, and technological advancement.
Slowing US crude oil production
Oil prices have fallen by 77% since June 2014 due to record production from Russia and OPEC (Organization of the Petroleum Exporting Countries). The higher break-even costs and production costs of US shale oil producers like Whiting Petroleum (WLL), Hess (HES), ConocoPhillips (COP), and Continental Resources (CLR) have motivated them to idle high-cost rigs as part of operational sustainability efforts. For more on the financial woes of US energy companies, read US Oil and Gas Companies’ Debt Exceeds $200 Billion. You might also be interested in reading Crude Oil’s Total Cost of Production Impacts Major Oil Producers.
US crude oil production estimates for 2016 and 2017
US crude oil production averaged 9.4 MMbpd in 2015, per EIA sources. The EIA estimates that US crude oil production could fall to 8.7 MMbpd in 2016 and to 8.5 MMbpd in 2017 due to lower crude oil prices. The monthly drilling report also suggests US crude oil production could slow down in the short term. This would affect oil producers like Energy XXI (EXXI), Halcón Resources (HK), and Marathon Oil (MRO).
The current US production is 0.1% more than last year’s levels. However, flat weekly US production added to the rise in the crude oil inventory, as covered in the second part of this series. Secondly, US crude oil production has remained above 9.2 MMbpd consistently for the last five weeks and has shown resilience despite lower oil prices. If US crude oil production takes much longer than expected to slow down, we could see crude oil trade lower for the next two decades.
The ups and downs in the oil market affect ETFs like the United States Oil Fund (USO), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the Vanguard Energy ETF (VDE), and the First Trust Energy AlphaDEX Fund (FXN).
In the next part of this series, we’ll take a look at US refinery demand.