EIA reports optimistic numbers on crude mining, likely to act as booster for crude price

As per the US Energy Information Administration (EIA), it is expected that an increase in crude oil mining of 530,000 barrels per day in 2015. This can be explained by the higher production level at the beginning of the year which pushes up the overall annual average figure.

The EIA expects growth of only 20,000 barrels per day in 2016. In each of the three preceding years, US crude oil production had risen by approximately 1 million barrels per day.

As stated in our earlier post, US oil corporations recently announced that they would scale up their drilling activities again if prices were to climb further. The marked slowdown in production growth in the US contrasts with a further increase in OPEC production. According to its own monthly report, the cartel produced just shy of 31 million barrels per day in April, which is 1.5 million barrels per day more than the estimated call on OPEC - Saudi Arabia and Iraq playing a particular part in this. By its own account, Saudi Arabia expanded its output in April to a record 10.3 million barrels per day.

We believe oil prices are done with their short span of correction and resume their upswings. Brent gained by 3% yesterday and is trading at $67.5 per barrel this morning after recording a price of below $65 at the start of the week.  WTI currently costs $61.5 per barrel again, as compared with less than $60 when the week began.

Derivatives Insights:

We've already stated in our earlier article about crudes bullish behavior in near future. As we are slightly bullish in the near term on crude oil on the back of good news pouring in, it is advisable to hedge this commodity against global market risk. We are projecting the prices to surge up in near term, hedging through call options can be more profitable for commodity traders. Else, long on near month future would be an alternative.