30 Mar

Why US Crude Oil Production Reached a 13-Month High

WRITTEN BY Gordon Kristopher

US crude oil production  

The EIA (U.S. Energy Information Administration) reported that US crude oil production rose by 18,000 bpd (barrels per day) to 9,147,000 bpd from March 17–24, 2017. Production rose 0.2% week-over-week and 1.4% year-over-year. US crude oil production is at the highest level since February 2016. The rise in US crude oil production is the biggest bearish driver for crude oil (FENY) (FXN) (SCO) prices in 2017.

Lower crude oil prices have a negative impact on oil and gas producers’ earnings like Chevron (CVX), Apache (APA), Denbury Resources (DNR), Devon Energy (DVN), and Cobalt International Energy (CIE). For more on crude oil prices, read Part 1 of this series.

Why US Crude Oil Production Reached a 13-Month High

Peaks and lows  

US crude oil production peaked at 9,600,000 bpd in June 2015. In contrast, it had hit a low of 8,428,000 bpd for the week ending July 1, 2016—the lowest level since June 2014. Since then, US crude oil production has risen ~8%.

Lower crude oil prices, higher break-even costs, and higher production costs for US shale oil producers compared to other oil producers led to the fall in US crude oil production in 2016.

However, the recovery in crude oil prices since early 2016 led to the rise in US crude oil drilling activity and US crude oil production in late 2016 and early 2017.

US crude oil production estimates  

The EIA estimates that US crude oil production will average 9,210,000 bpd and 9,730,000 bpd in 2017 and 2018, respectively. The EIA estimates that US crude oil production will rise to a 48-year high in 2018. Barclays Bank estimates that US crude oil production could hit a high from the 1970s in the coming years. US crude oil production averaged 8,880,000 bpd in 2016.

US production could rise in 2017 due to the following factors:

The rise in production could pressure US crude oil (USO) (UCO) prices. The US might be the main producer to offset a fall in the crude oil supply from major oil producers’ output cut deal. If OPEC doesn’t extend major oil producers’ output cut deal, we could see more downside for crude oil prices. Read Russia’s Central Bank: Crude Oil Prices Could Hit $40 per Barrel for more on crude oil price forecasts.

In the next part of this series, we’ll take a look at US crude oil refinery input and crude oil imports.

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