US Crude Oil Production: Will Crude Oil Futures Collapse?

US crude oil production  

US crude oil production rose by 24,000 bpd (barrels per day) to 9,682,000 bpd on November 17–24, 2017, according to the EIA. Production rose for the sixth consecutive week. Oil (USO) (USL) prices fell on November 29, 2017, partially due to record US oil production. Production rose 0.3% week-over-week and by 983,000 bpd or 11.3% from the same period in 2016. So far, US crude oil production has been the biggest bearish driver for oil (BNO) (DBO) prices in 2017.

US Crude Oil Production: Will Crude Oil Futures Collapse?

Drivers of US crude oil production

US crude oil production is usually closely related to oil prices, according to the above chart. Oil (OIL) (DTO) prices are near a three-year high. Higher oil prices, falling break-even and production costs, and US shale producers’ (XLE) (VDE) technological advancement could drive US oil production.

Higher oil prices have a positive impact on oil producers’ (FXN) (FENY) earnings like BP (BP), Stone Energy (SGY), Gulfport Energy (GPOR), and Marathon Oil (MRO).

US crude oil production estimates  

Rystad Energy predicts that US crude oil production could surpass 9.9 MMbpd (million barrels per day) by December 2017. According to the EIA, US production will average ~10 MMbpd in 2018. Goldman Sachs predicts that US oil production will rise by 850,000 bpd in 2018. US oil production averaged 9.4 MMbpd in 2015 and 8.9 MMbpd in 2016.

Production cuts and US crude oil production

Major producers agreed to reduce oil production by 1,800,000 bpd from January 2017 to March 2018. US crude oil production has risen by 736,000 bpd or 8.2% from January 2017 to November 24, 2017. It has offset 40% of the production cuts.

Impact  

Record US production could offset more than 900,000 bpd of ongoing production cuts. The rise crude oil supplies from Canada, Brazil, Iran, and Libya could partially offset the production cuts. All of these factors could weigh on oil prices even if OPEC extends the production cut beyond March 2018.

Next, we’ll analyze US gasoline inventories.