US output records jeopardize oil markets

US crude oil production broke 10 million barrels a day in November for the first time since production peaked in 1970, the Energy Information Administration said in a monthly report.

The US produced 10.038 million barrels a day in November, 4% more than the previous month. That is just shy of the monthly record of 10.044 million barrels a day in November of 1970, the Wall Street Journal reported.

In weekly EIA data that will be revised, the US produced 9.92 million barrels a day last week, up sharply from 8.9 million barrels a day a year ago.

As US producers pump more, oil imports from foreign countries are shrinking to new lows and American crude exports are rising. The petroleum trade deficit in the US was 2.5 million barrels a day at the end of the year. That is down sharply from a peak petroleum deficit of 12.5 million barrels a day in 2007.

The resurgence of the US shale industry is the latest turn in the tug of war between shale producers and the OPEC, which last year coordinated an output cut with other major exporters. The group has been trimming about 2% of global oil supply in a bid to work off a glut and raise prices. Due to the deal WTI rose more than 7% in January and have posted monthly gains for five straight months--their longest streak since 2011. 

First Vice-Rector for International Cooperation and External Communications of Financial University under the Government of the Russian Federation, the founder and CEO of the national energy security Fund of Russia, Konstantin Simonov, speaking to Vestnik Kavkaza, noted that this statistics will inevitably affect traders and, as a consequence, the oil price. "There are two differently directed trends in the oil market: factors that point in favor of expensive oil, including the OPEC deal, increased demand for oil, the withdrawal of investments from the industry, geopolitical instability in the Middle East and a cheap dollar - and US production growth as the main factor in the use of cheap oil. So in terms of psychology and the mood of traders it is very important which of the trends will win," he explained.

"The fact is that when they start to publish market data, speaking about 'record indicators', 'the historical record', it becomes an information campaign," Konstantin Simonov pointed out.

"At the same time, President Donald Trump bets on expensive oil, since it boosts production in North America, creating a 'switch effect': when prices go above $50 per barrel, involving shale projects, we see a growth effect, and when they fall below $50 per barrel, production is declining, as well as investment. The shale toggle switch is currently 'on'. In addition, Trump deliberately lowers the dollar rate to keep oil at $70 per barrel. Of curse, it's not possible to devaluate dollar forever, so I think that in the second half of the year we can face a significant drop in oil prices," the economist predicts.

The deputy director of energy policy of the Institute of Energy and Finances, Alexey Belogoriev, on the contrary, is confident that this news will not affect traders. "These estimates do not exceed the market expectations and are already laid in current prices. Another thing is that predicting future developments is uncertain," he said.

"The US output increase, which is expected this year, will lead to a market imbalance in the third quarter, if the composition and responsibilities of the OPEC + members are preserved. But even if the agreement is implemented, there will be gradual excess supply over demand due to the increasing output in the US and in some other countries, which is likely to cause a decline in prices to $50-60 per barrel in the second half of the year," Alexei Belogoriev predicts.