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How Long Will US Crude Oil Production Support Crude Oil Prices?

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Apr. 7 2016, Updated 3:07 p.m. ET

US crude oil production

The EIA (U.S. Energy Information Administration) released its Monthly Crude Oil and Natural Gas Production report on March 31, 2016. The government agency reported that US monthly crude oil production fell by 0.6% to 9.2 MMbpd (million barrels per day) in January 2016 compared to 9.2 MMbpd in December 2015. The weekly US crude oil production fell slightly by 16,000 bpd (barrels per day) to 9 MMbpd (million barrels per day) between March 18, 2016, and March 25, 2016. It’s the lowest level since November 14, 2014.

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US crude oil production peaks and lows

Monthly US crude oil production peaked at 9.7 MMbpd in April 2015, which was the highest level since the 1970s. US production rose due to cheap credit facilities, technological advancement, and triple-digit crude oil prices between 2010 and 2014. The weekly US crude oil output fell by almost 7% from the peak levels of 9.7 MMbpd. US shale oil production fell due to higher break-even costs and production costs compared to oil producers in the Middle East. This led to a fall in US crude oil production. For more information on US energy companies’ financial woes, read US Oil and Gas Companies’ Debt Exceeds $200 Billion and Crude Oil’s Total Cost of Production Impacts Major Oil Producers.

US crude oil production estimates 

Monthly US crude oil production fell in the Gulf of Mexico and North Dakota by 1.1% and 2.8%, respectively, in January 2016 compared with the previous month. However, it rose by 0.7% to 3.4 MMbpd for the same period. The International Energy Agency reported that US crude oil production is expected to decline by 530,000 bpd in 2016. 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 slowing US crude oil production benefits crude oil prices and oil producers like Swift Energy (SFY), Energy XXI (EXXI), Halcón Resources (HK), and Goodrich Petroleum (GDP). Crude production also affects ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the PowerShares DWA Energy Momentum (PXI), the United States Brent Oil (BNO), and the United States 12 Month Oil (USL).

In the next part of the series, we’ll look at how hedge funds are playing the crude oil market.

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