US Crude Oil Production Slows Sharply: Will It Set WTI on Fire?
Can a Slew of Bullish EIA Reports Fuel Crude Oil to Rally More?
Crude production down sharply last week
The EIA (U.S. Energy Information Administration) estimates that crude oil production decreased by a massive 112,000 bpd (barrels per day) to 9.26 MMbpd (million barrels per day) in the week ending May 15. This was the first triple-digit drop since September last year. However, last week’s production levels were still ~10% higher than the levels of 8.43 MMbpd last year.
Markets still seem to be confused about whether crude oil production has peaked, given the small increase in production in the week ending May 8. This actually followed a decrease in the week ending May 1.
While this week’s four-week average production of 9.345 MMbpd is ~11% higher than the 8.391 MMbpd for the same period last year, it does hint at a clear slowing. It’s a smaller number than the four-week average of 9.371 MMbpd recorded a week ago.
A decline in crude production is bullish for crude prices and oil producers like Hess (HES), Oasis Petroleum (OAS), Murphy Oil (MUR), and Anadarko Petroleum (APC). All of these companies are part of the iShares U.S. Energy ETF (IYE). They account for 4% of IYE.
Slowing production could indicate that the oil market may balance itself—mitigating the current supply glut that has caused crude oil prices to slump to multiyear lows.
Imports rose last week
Crude imports increased by 318,000 bpd to average ~7.2 MMbpd last week. Now, they’re 11% higher than the levels last year. Strong US Gulf Coast margins drew crude imports from Saudi Arabia, Iraq, and Kuwait.
Supply forecasts for 2015 and 2016
According to the EIA’s May STEO (Short-Term Energy Outlook) released on May 12, US crude oil production is expected to decline from June through September. Then, growth is expected to resume. According to the EIA, crude production will average 9.2 MMbpd in both 2015 and 2016.
It also expects the share of total US liquid fuels’ consumption met by net imports to decline to 21% in 2016—the lowest level since 1969. Net imports’ share declined to an estimated 26% in 2014—compared to 60% in 2005. The EIA forecasts average net imports of 6.69 MMbpd in 2015.
In the next part of this series, we’ll take a look at demand trends for last week.
Browse this series on Market Realist:
