Oil prices increased sharply yesterday after initial losses. The price of Brent rose by 1.7% to a two-week high of USD 59 per barrel, and WTI by as much as 3.5% to a good USD 54 per barrel, its highest level since the end of December.
The crucial factor here was an expected downward revision of estimated US crude oil production by the US Energy Information Administration (EIA). This has in fact happened. An average level of 9.2 million barrels per day is now expected in 2015. Production is set to average 9.3 million barrels per day in 2016. This represents a downward revision of 100,000 barrels per day for 2015 and 200,000 barrels per day for 2016 compared to the previous estimate.
The EIA expects production to peak temporarily at around 9.37 million barrels per day in May. Production will then fall back to 9.04 million barrels per day by September, rising subsequently to 9.20 million barrels per day again by year-end. The sharp decline in drilling activity since the beginning of 2015 would thus have only a minimal impact on oil production.
We could imagine a more significant decline in production than is forecast by the EIA, to levels of well below 9 million barrels per day. The US Department of Energy will today publish production data for last week.
"Should US crude oil production have fallen again, oil prices would be likely to increase again. Brent could then approach a level of USD 60 per barrel and WTI USD 55 per barrel", says Commerzbank.
On the other hand, reports from the Saudi Arabian oil minister al-Naimi that a record 10.3 million barrels of crude oil per day was produced there in March, and from API that US crude oil stocks have grown by another 12.2 million barrels in the last week, are likely to have only a temporarily negative impact on prices.
