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Irina Slav
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By Irina Slav – Jan 23, 2024, 7:00 PM CST
- Traders are selling WTI crude in anticipation of higher U.S. production later this year.
- In its latest Short-Term Energy Outlook, the Energy Information Administration predicted that output this year could reach 13.2 million barrels daily.
- Traders have a good reason to expect more growth and that reason is that last year, the industry did not actively try to boost production so substantially.
Traders are selling West Texas Intermediate futures in anticipation of further strong production growth. As a result, prices are weakening further despite the uncertainty of such an outlook.
Expectations from the industry and the EIA are for much slower U.S. oil production growth this year. But that has had no effect on trader behavior. The latter might be in for a surprise.
Hedge funds and other institutional traders sold the equivalent of 24 million barrels of U.S. crude in the week to January 16, Reuters market analyst John Kemp
reported this week. This compared with Brent buys equivalent to 18 million barrels, Kemp noted.
Traders, then, expect even lower prices for U.S. oil later this year. And there is only one reason they expect this: more explosive growth like the one booked last year. Traders don’t want any more surprises, it seems. Yet they might still end up surprised.
In its latest Short-Term Energy Outlook, the Energy Information Administration predicted that output this year could reach 13.2 million barrels daily. This would be a new record high but this is not the important part. The important part is that the projected 2024 figure is only about 200,000 bpd higher than the average daily for 2023. And that 2023 average daily represented an increase of over 1 million bpd over the 2022 average.
Traders, however, have a good reason to expect more growth and that reason is that last year, the industry did not actively try to boost production so substantially. It happened kind of inadvertently as drillers continued to improve efficiency in a bid to extract more oil for the same money.
A surprise for the industry itself was higher than expected productivity from many wells, which also contributed to the production growth that shocked the oil market and made traders bears overnight.
The question this year would be whether the U.S. oil industry can and, more importantly, wants to repeat that stellar performance. The answer is likely to be “Not really.”
The latest Dallas Fedsurvey, released in December, suggested that few companies in the oil patch have any major spending increase plans.