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Could US Crude Oil Futures Hit $40 per Barrel?

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Crude oil futures 

August WTI crude oil (XLE) (XOP) (IXC) futures contracts fell 0.4% to $43.3 per barrel in electronic trade at 6:20 AM EST on June 21, 2017. Crude oil prices are trading near the low from September 16, 2016.

Lower crude oil prices have a negative impact on oil and gas exploration and production companies like Chevron (CVX), Northern Oil & Gas (NOG), Apache (APA), and QEP Resources (QEP).

Crude oil prices fell 18% in the last year. Prices fell due to the following:

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  • There was technical weakness and massive selling.
  • Crude oil storage in tankers hit a 2017 high.
  • Libya’s crude oil production is expected to hit 900,000 bpd (barrels per day) in June 2017. It’s expected to hit 1 MMbpd (million barrels per day) by July 2017. Production is at a three-year high.
  • According to OPEC’s monthly report, Nigeria’s crude oil production hit a one-year high. Reuters estimates that Nigeria’s crude oil exports will rise in July and August 2017. The EIA (U.S. Energy Information Administration) estimates that Nigeria’s crude oil production rose by 101,000 bpd to 1.52 MMbpd in May 2017.
  • There was a rise in OPEC’s crude oil production in May due to a rise in production from Libya, Nigeria, and Saudi Arabia.
  • US crude oil production is expected to rise in 2017 and 2018.

For more on bearish drivers, read Crude Oil Prices Trade at a 7-Month Low and Traders Track the Key Support Level for Crude Oil Futures.

Technological advancement and improving production cost from US shale oil producers would increase production. Rystad Energy estimates that US shale oil producers can break even between $50 and $60 per barrel today. Some US oil producers can have a breakeven cost as low as $40 per barrel. It suggests that US production could rise despite lower prices. Bearish fundamentals and technical weakness could drive crude oil prices to $40 per barrel in the near term.

Next, we’ll look at the API’s estimates for US crude oil inventories.

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