the recent attacks on Saudi's oil infrastructure would have undoubtedly had a much larger impact on the world's oil markets. Now, less than a month later, the prices of West Texas Intermediate and Brent crude are actually below the prices prior to the attacks.
There are a couple of reasons for continued weakness in oil prices, but this would be a very different discussion without the millions of barrels per day (BPD) of U.S. crude oil that was added to the global oil supply over the past decade.
Because the growth of U.S. crude oil production has had a stabilizing influence on the world's oil markets, there is naturally intense interest in the future of U.S. oil production.
Back in the summer, it looked like that production growth was slowing. Year-over-year production growth had been slowing since early in the year, and monthly production had been declining heading into summer. The key driver of these developments was that production growth in the important Permian Basin had plummeted over the past year.
But that was then and this is now.
Production started rising again during the summer, and last week the Energy Information Administration (EIA) reported that weekly production tied the all-time production record of 12.5 million BPD of U.S. crude oil production that had been first reached a month ago. This week's report showed that production declined slightly to 12.4 million BPD, but is still 1.3 million BPD higher than it was a year ago. That is still robust year-over-year growth, and is higher than it was heading into the summer.
About half of the 400,000 BPD production increase since summer comes from the Permian Basin. Production there continues to grow, albeit at the slowest pace in three years.
One indicator of where U.S. oil production may be headed comes from rig count data, which now shows a 22% decline since last November. On the other hand, the inventory of wells that have been drilled but not yet completed (DUCs) remains near all-time highs at around 8,000 wells. That means there could be a significant lag between the decline in the drilling rig count, and an actual decline in oil production.
Meanwhile, crude oil inventories in the U.S. remain right in the middle of the 5-year average level. These inventories are one of the strongest drivers of crude oil prices, and as long as they are where they are, it will probably be hard to make a bullish case for crude oil prices.
Date: Oct 3, 2019