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Will OPEC’s Production Cuts Offset Record Crude Oil Production?

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Weekly US crude oil production  

According to the EIA, US crude oil production increased by 20,000 bpd (barrels per day) to a record high of 10,271,000 bpd on February 2–9, 2018. The production also increased by 1,294,000 bpd or 14.4% from a year ago.

US crude oil prices declined 8.4% from the three-year high hit on January 26, 2018. Prices declined due to record US crude oil production and profit-taking. The PowerShares DB Oil Fund (DBO) and the VelocityShares 3x Long Crude Oil ETN (UWT) follow crude oil futures. DBO and UWT have declined 7.4% and 23%, respectively, since January 26, 2018.

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US crude oil production recovery  

US crude oil production has increased by 1,843,000 bpd or 21.9% since July 1, 2016. Higher oil prices and improved drilling costs led to the rise in US oil production. US oil prices have increased 131% since February 11, 2016. The Vanguard Energy ETF (VDE) and the Guggenheim S&P Equal Weight Energy ETF (RYE) have risen 26% and 38%, respectively, since February 11, 2016. These ETFs have exposure to oil and gas stocks.

Estimates for 2018 

The EIA estimates that US oil production could average 10.59 MMbpd (million barrels per day) in 2018 and 11.18 MMbpd in 2019. US oil production could hit the highest annual average in 2018 and 2019. 

US crude oil production is expected to average 10.4 MMbpd in 2018, according to the IEA.

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Output cuts and US oil production 

US oil production is expected to rise 18.4% or by 1,649,000 bpd between January 2017 and December 2018. If US production rises at this speed, it could offset ~90% of the supply cuts by major oil producers.

Impact 

Non-OPEC crude oil production is expected to increase by 1,400,000 bpd in 2018, which could pressure oil prices. The rise in the US and non-OPEC oil production could offset ~100% of the supply cuts by major oil producers, which could pressure oil prices in 2018.

Next, we’ll discuss US gasoline inventories.

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