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Record US Crude Oil Production Weighs on Oil Prices

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Weekly US crude oil production  

On May 23, the EIA released its weekly US crude oil production data. The EIA reported that US crude oil production increased by 2,000 bpd (barrels per day) to a record high of 10,725,000 bpd on May 11–18. The production also increased by 1,405,000 bpd or ~15.1% year-over-year.

The news of record production pressured oil prices on May 23. July WTI crude oil futures fell ~0.4% on the same day. The Energy Select Sector SPDR ETF (XLE) fell ~0.01% on May 23. XLE seeks to track the performance of the Energy Select Sector Index. Cimarex Energy (XEC), Concho Resources (CXO), and TechnipFMC (FTI) account for ~3.1% of XLE’s holdings. The stocks fell ~3.7%, ~2.6%, and 1.9%, respectively, on May 23. The stocks were the top percentage losses in XLE’s portfolio on May 23.

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US crude oil production recovery  

The US crude oil output declined to 8,428,000 bpd on July 1, 2016—the lowest level in more than two years. Since then, US crude oil production has risen by 2,297,000 bpd or ~27.3%.

Higher oil prices mainly led to the increase in US crude oil output. US oil prices have increased ~174% since February 11, 2016. The Guggenheim S&P Equal Weight Energy ETF (RYE) rose ~67.6% during the same period. RYE seeks to follow the performance of the S&P 500 Equal Weight Energy Index.

Estimates for 2018 and 2019 

US oil production could average 10.72 MMbpd (million barrels per day) in 2018 and 11.86 MMbpd in 2019, according to the EIA. US crude oil production could hit the highest annual average in 2018 and 2019 if the projections are achieved.

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Production cuts and US oil output 

The US crude oil output is estimated to increase ~21% or by ~1,860,000 bpd from January 2017 to December 2018. If the output increases at this speed, it could offset ~100% of the ongoing production cuts by major oil producers. 

Impact  

Record US crude oil production could be the biggest bearish driver for oil prices in 2018.

Next, we’ll discuss US crude oil exports.

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