US Crude Oil Production Reached New Highs
Weekly US crude oil production
The EIA estimates that US crude oil production increased 0.8% to a record high of 10,369,000 bpd (barrels per day) on February 23–March 2, 2018. US crude oil production also increased by 1,281,000 bpd or 14.1% YoY (year-over-year).
US oil prices have declined 7.5% since January 26, 2018. The prices declined partly due to record US crude oil production. The PowerShares DB Oil Fund (DBO) and the United States 12 Month Oil Fund (USL) have declined 5.7% and 6.2%, respectively, since January 26, 2018.
DBO tracks the performance of the DBIQ Optimum Yield Crude Oil Index Excess Return and US Treasury bills. USL follows WTI crude oil futures.
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US crude oil production recovery
US crude oil production reached 8,428,000 bpd on July 1, 2016—the lowest level in more than two years. US production has increased by 1,941,000 bpd or 23% since July 1, 2016.
Higher oil prices and improved drilling costs led to the increase in US oil production. WTI oil prices have risen 133.3% since February 11, 2016. The Vanguard Energy ETF (VDE) and the Guggenheim S&P Equal Weight Energy ETF (RYE) have risen 31.1% and 41.7%, respectively, since February 11, 2016. These funds have exposure to energy companies.
Estimates for 2018
On March 6, 2018, the EIA said that US oil production could average 10.7 MMbpd in 2018—1% higher than the February 2018 estimates. The EIA also estimated that US oil production could average 11.27 MMbpd in 2019—0.8% higher than the February 2018 estimates. The US oil output could hit the highest annual average in 2018 and 2019.
The International Energy Agency estimates that the US could become the world’s top crude oil producer by 2023.
Supply cuts and US oil production
US oil production is expected to rise 20.2% or by ~1,800,000 bpd from January 2017 to December 2018. If the US output increases at this speed, it could offset ~100% of the production cuts by major oil producers.
The rise in US oil production would be the biggest bearish driver for oil prices in 2018.
Next, we’ll discuss US gasoline inventories.