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US Crude Oil Production: Biggest Threat for Oil Prices

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Monthly US crude oil production

The EIA (U.S. Energy Information Administration) estimates that US crude oil production increased by 215,000 bpd (barrels per day) to a record high of 10,474,000 bpd in March—compared to the previous month. The production also increased by 1,334,000 bpd or ~15% from a year ago. The EIA released its monthly US crude oil production data on May 31.

Active WTI crude oil futures have declined ~10.4% since May 21. The Energy Select Sector SPDR ETF (XLE) has dropped ~4% since May 21. XLE aims to follow the Energy Select Sector Index.

Concho Resources (CXO), Cimarex Energy (XEC), Helmerich & Payne (HP), and Halliburton (HAL) account for 6.3% of XLE’s holdings. These stocks have declined ~17.4%, ~13.8%, 13%, and ~11.8%, respectively, since May 21. These stocks have been the top percentage losses in XLE’s portfolio since May 21.

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US crude oil production recovery 

The monthly US crude oil output dropped to 8,553,000 bpd in September 2016—the lowest level in more than two years. Since then, the US crude oil output has risen by 1,921,000 bpd or ~23%. Higher crude oil prices mainly led to the rise in US crude oil production. WTI oil prices have increased ~147% since February 11, 2016.

Estimates for 2018 and 2019

The EIA estimates that US crude oil production could average 10.72 MMbpd (million barrels per day) in 2018 and 11.86 MMbpd in 2019. US crude oil production could reach 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 expected to rise ~21% or by ~1,860,000 bpd from January 2017 to December 2018. If the production increases at this pace, it could offset ~100% of the current supply cuts by major oil producers. 

Impact 

Record US crude oil output could pressure oil prices in 2018. However, the possibility of new sanctions on Venezuela and Iran as well as supply outages exceeding supply growth from the US across various countries could support oil prices.

Next, we’ll discuss some crude oil price forecasts.

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