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US Crude Oil Production Could Become the Biggest Bear in 2016

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US crude oil production

The EIA (US Energy Information Administration) reported that US weekly crude oil production fell marginally by 7,000 bpd (barrels per day) to 9.214 MMbpd (million barrels per day) during the week ending January 29, 2016. The four-week average US crude oil production was at 9.224 MMbpd for the same period.

Monthly US crude oil production peaked at 9.6 MMbpd in April 2015. The latest monthly figures suggest that crude oil production was at 9.3 MMbpd (million barrels per day) in November 2015, compared to 9.4 MMbpd in October 2015.

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US crude oil production in 2014 

Current US weekly crude oil production is 0.44% higher than the last year’s level of 9.17 MMbpd, and this record US production has contributed to the fall in crude oil prices over the past 20 months. Meanwhile, OPEC (Organization of the Petroleum Exporting Countries) kingpins like Saudi Arabia have been producing at record levels, further causing oil prices to hit historic lows in an effort to compete with and potentially edge out US oil producers. Problem is, US shale production has higher break-even costs and production costs. (For more on US energy companies’ financial woes, check out Market Realist’s US Oil and Gas Companies’ Debt Exceeds $200 Billion.)

US crude oil production estimates  

The EIA’s monthly drilling report suggests that US crude oil production could fall by 116,000 bpd (barrels per day) in February 2016. The EIA also estimates that US crude oil production could fall to 8.7 MMbpd in 2016 and 8.5 MMbpd in 2017 due to such low crude oil prices. US crude oil production averaged 9.4 MMbpd in 2015—its highest level since the 1970s.

Meanwhile, weekly US crude oil production has remained above 9.2 MMbpd consistently for the last six weeks, and US shale oil producers like Laredo Petroleum (LPI), Whiting Petroleum Corporation (WLL), EOG Resources (EOG), Pioneer Natural Resources (PXD), and Marathon Oil Corporation (MRO) are showing resilience, despite low oil prices. If US crude oil production takes much longer than expected to slow down, we could potentially see crude oil trade at low levels for the next two decades.

Impact on ETFs

The volatility in the oil prices also affects ETFs such as the United States Oil Fund (USO) the First Trust Energy AlphaDEX ETF (FXN), the Vanguard Energy ETF (VDE), and the ProShares Ultra Bloomberg Crude Oil ETF (UCO).

To learn more about the bearish catalyst of oil production, check out Market Realist’s Saudi Arabia’s Crude Oil Production: Key for the Global Oil Market and OPEC Crude Oil Production Is Breaking Records. For more on Russia’s crude oil production, read Russia’s Production Will Put More Pressure on the Crude Oil Market.

Now let’s get more specific with recent US refinery demand.

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