Oil Falls As EIA Data Shows That Domestic Production Is Increasing

Key Insights

• Crude inventories grew by 2 million bpd, driven by strong imports and rising domestic production. 
• It looks that the market has doubts on whether demand will be strong enough at current oil price levels. 
• In the upcoming weeks, traders will focus on the dynamics of the domestic oil production.

EIA Report Shows That Domestic Production Increased To 12 Million Bpd

WTI oil moved lower after the release of the EIA Weekly Petroleum Status Report which indicated that crude inventories increased by 2 million barrels from the previous week. Analysts expected that crude inventories will decline by 1.3 million barrels.

The increase was driven by strong imports, which increased by 0.8 million barrels per day (bpd) and averaged 7 million bpd. In addition, U.S. domestic oil production grew from 11.9 million bpd to 12 million bpd.

At current levels, U.S. crude inventories are about 14% below the five-year average for this time of the year. In order to break the current upside trend in the oil markets, crude oil inventories should continue to increase.

What’s Next For WTI Oil Price?

WTI oil has recently made an attempt to settle above the psychologically important $120 level but failed to develop sufficient upside momentum and pulled back.

Domestic oil production has finally reached the 12 million bpd level. This is important for markets as it shows that producers are reacting to high oil prices. A year ago, domestic production stood at 11.2 million bpd.

The key question is whether high oil prices will ultimately put pressure on demand. At this point, there are no signs that the economy could not tolerate oil at $120 per barrel. For example, demand for gasoline remains healthy, and total motor gasoline inventories decreased by 0.7 million barrels.

In addition, traders will keep monitoring the levels of the domestic oil production. Oil companies have prioritized financial discipline in recent years, and it remains to be seen whether they will be ready to increase production aggressively. At the same time, current oil prices are very attractive for producers.

In this light, the dynamics of the domestic oil production will serve as an important catalyst for WTI oil price dynamics. If domestic production remains stuck at 12 million bpd and does not rise to new highs, WTI oil will have a good chance to settle above the $120 level.

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