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US Crude Oil Production Is Expected to Fall in 2016

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Jan. 20 2016, Updated 8:04 a.m. ET

US crude oil production

US crude oil production peaked at 9.6 MMbpd (million barrels per day) in April 2015. It fell to 9.2 MMbpd by December 2015. Genscape forecasted that the crude oil production will fall more in 2016. The production is expected to fall to just 8.1 MMbpd by the end of 2016.

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US rig counts will fall through mid-2016

In the last two weeks of December 2015, the total rig counts for oil and gas fell by 75 rigs. They fell by another 45 rigs in the first two weeks of 2016. As of the week ending January 15, 2016, 650 rigs are drilling wells in the US. This is the lowest level since at least 2006.

Genscape expects the rigs to fall through mid-2016. It’s forecasted that 386 rigs will fall over the next six months. It expects 384 active rigs in July 2016.

Why did the crude oil production and rig counts fall?

The global glut in crude oil and gas supplies caused the US rig counts and crude oil production to fall. The reductions are expected to continue. The gasoline and distillate demand is very weak. Massive gasoline and distillate stockpiles cause the crude oil demand to fall. The crude oil demand will fall more as refineries go into summer maintenance. So, crude oil production is expected to fall in the coming months.

The fall in the rig counts and crude oil production impacts oil field service companies and crude oil producers’ revenue like Baker Hughes (BHI), Schlumberger (SLB), Marathon Oil (MRO), and ConocoPhillips (COP).

ConocoPhillips accounts for 4.5% of the Vanguard Energy ETF (VDE).

The fall in production volumes lowers the transport volumes. This has a negative impact on MLPs like Sunoco Logistics (SXL), Plains All American Pipeline (PAA), and Targa Resources (NGLS).

In the next part of this series, we’ll provide estimates for the global crude oil demand.

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