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Is US Crude Oil Production at a Turning Point?

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Monthly US crude oil production

The EIA (U.S. Energy Information Administration) reported that monthly US crude oil production rose by 510,000 bpd (barrels per day) to 8,744,000 bpd in August 2016—compared to the previous month. Production rose 0.6% month-over-month, but fell 6.8% year-over-year. US crude oil production rose for the first time in five months due to the rise in the US drilling activityUS drilling activity.

Read Is US Crude Oil Production Bearish for Crude Oil Prices? for more on weekly US crude oil production. The rise in US crude oil production would pressure crude oil prices. For more on crude oil prices, read Part 1 of the series.

Successful implementation of Donald Trump’s proposed energy policies could increase the US drilling activityUS drilling activity. It would increase US crude oil production and have a negative impact on crude oil prices.

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Regional breakdown

  • East Coast (or PADD1) – Production was at 45,000 bpd in August 2016—compared to 45,000 bpd in July 2016.
  • Midwest (or PADD 2) – Production was at 1,611,000 bpd in August 2016—compared to 1,662,000 bpd in July 2016.
  • Gulf Coast (or PADD 3) – Production was at 5,446,000 bpd in August 2016—compared to 5,364,000 bpd in July 2016.
  • Rocky Mountain (or PADD 4) – Production was at 652,000 bpd in August 2016—compared to 653,000 bpd in July 2016.
  • West Coast (or PADD 5) – Production was at 990,000 bpd in August 2016—compared to 970,000 bpd in July 2016.

Peak and lows

US crude oil production peaked at 9.6 MMbpd (million barrels per day) in April 2015. In July 2016, it hit 8.693 MMbpd—the lowest monthly crude oil production since May 2014. Lower crude oil prices, higher break-even costs, and relatively higher production costs for US shale oil producers—compared to other oil producers—led to the fall in US crude oil production.

The fall in US crude oil production impacts oil producers’ earnings like Sanchez Energy (SN), Marathon Oil (MRO), ConocoPhillips (COP), Stone Energy (SGY), and Laredo Petroleum (LPI).

For more information on US energy companies’ financial challenges, read North American Oil and Gas Producers’ Debt Rose in 2015 and Crude Oil’s Total Cost of Production Impacts Major Oil Producers.

Impact on ETFs 

Volatility in crude oil prices also impacts funds such as the Vanguard Energy ETF (VDE), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the United States Brent Oil (BNO), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), the Direxion Daily Energy Bear 3x (ERY), and the Guggenheim S&P 500 Equal Weight Energy ETF (RYE).

Next, we’ll analyze OPEC’s monthly crude oil production and its impact on the crude oil market.

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