"A lower forecast for crude oil prices is expected to shave a little off projected growth in USA oil production next year compared with the previous forecast", said Howard Gruenspecht, acting EIA administrator. The commodity is looking to be extending the positive gains until the end of the week because of the growing cut in the fuel inventories and the U.S. government's adjusted forecasts for crude output for next year. Brent crude, the global benchmark, gained 22 cents, or 0.5%, to $47.74 a barrel on ICE Futures Europe. A Saudi industry source said on Wednesday Riyadh planned to cut shipments in August by more than 600,000 bpd, taking exports for that month to their lowest level this year, to balance a seasonal rise in domestic use.
A separate report from the Energy Information Administration (EIA) highlighted the mounting challenges to the U.S. energy sector, which are poised to produce significant consequences for the oil market next year.
OPEC cut production earlier this year in an effort to prop up prices by removing 1.8 million barrels of oil from the market daily.
In May, OPEC production rose by 366,000 barrels per day, thanks to Libya and Nigeria.
Crude oil prices remain under $50 a barrel.
With US driving season often the root cause of significant summer drawdowns in US crude inventories, this is not necessarily unexpected. This fate looks shaky as USA shale producers are already pulling back and reports of investment capital for shale is drying up.
According to the report, a "rebound in Libyan and Nigerian production added pressure to an already amply supplied Atlantic Basin due to a massive increase in USA shale oil production, while demand from Asia was weaker on account of upcoming refinery maintenance and unfavourable arbitrage economics". What we are now seeing is a pullback in shale oil production that will hold back USA oil output of shale until the economics start to make more sense.
In June 2015, U.S. oil production hit its then-highest on the record at 9.61 mln bpd, but the volumes of USA oil output have exceeded that number by now.
Although the production cut by OPEC has supported prices, the recent weeks have seen production grow in Libya and Nigeria, the two OPEC countries exempted from the cut.
The U.S. vaulting into the top ranks of exporters would have been unthinkable even a few years ago.