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Understanding the Low Level of US Crude Oil Production

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US crude oil production   

The EIA (US Energy Information Administration) reported that the weekly US crude oil production fell slightly by 10,000 bpd (barrels per day) to ~9.1 MMbpd (million barrels per day) in the week ending March 11, 2016. This is the lowest level since November 14, 2014.

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US crude oil production: high and low

Monthly US crude oil production peaked at nearly 9.7 MMbpd in April 2015—its highest level since the 1970s. US crude oil production rose due to higher crude oil prices between 2012 and 2014, cheaper credit facilities, and technological advancement. The latest EIA figures reported that monthly US crude oil production fell to lower than 9.3 MMbpd in December 2015—the lowest monthly production since November 2014. This means that monthly US crude oil production fell by 4% from the peak level of 9.7 MMbpd.

US crude oil production has been falling due to higher break-even costs and production costs of US shale oil producers compared to oil producers in the Middle East and Russia. However, the slowing US crude oil production has led to a rise in crude oil prices, helping crude oil prices rally more than 40% in the past two months. (Read the Part 1 of this series for more on crude oil price movement. Read the Part 5 to know more about key catalysts for crude oil prices.)

The recent uptick in oil prices benefits US shale oil producers like Laredo Petroleum (LPI), Cimarex (XEC), Denbury Resources (DNR), Ultra Petroleum (UPL), and Stone Energy (SGY).

US crude oil production estimates and ETFs

OPEC (Organization of the Petroleum Exporting Countries) estimates that the US crude oil production could fall by 0.42 MMbpd in 2016 in its March month oil market report. That would be down by 20,000 barrels from its forecast the previous month. The EIA expects that the US crude oil production could fall by 0.7 MMbpd to 8.7 MMbpd in 2016 compared to 2015. The International Energy Agency reported that US crude oil production is expected to decline by 0.53 MMbpd in 2016.

The volatility in the oil market also affects ETFs and ETNs like the ProShares Ultra Bloomberg Crude Oil ETF (UCO), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), and the VelocityShares 3x Inverse Crude Oil ETN (DWTI).

Now let’s analyze the key support and resistance levels for crude oil prices.

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