While crude oil prices digest Chinese data, falling rig counts and the aftermath of the OPEC decision, the big news this week really may surround U.S. oil output.
Andrew Weismann of EBA analytics says that on Tuesday June 9, the Energy Information Administration (EIA) – the branch of Department of Energy responsible for providing energy statistics – is likely to significantly increase its estimate of U.S. crude oil production for 2015 and 2016. Weisman says that while the magnitude of this increase is not yet known, an increase of 150,000 –200,000 barrels a day is possible. The International Energy Agency is likely to announce similar increases later in the week.
He says these revisions directly contradict EIA's earlier view that production in major U.S. tight oil plays would decline rapidly in May, with the potential to drop by as much as 400,000 barrels/day by September. Instead, estimated May production could be raised to as much as 9.5–9.6 million barrels/day, surpassing the previous all-time record. This shift, coming on the heels of OPEC's decision on Friday not to curb output, could significantly affect oil prices. We will see if that is the case. In the meantime oil prices were weak overnight after data showed that China oil imports fell 23.4% from last month's record high and about 11% from last year. But before the market gets too excited about the drop. Part of it is because China is going through its seasonal maintenance.
On top of that, weak Chines data opens up the door for more oil consuming stimulus. Chinese imports fell by a much more than expected 17.6% in May. Imports had fallen 16.2% in April.
Oil on Friday had a late day price surge shaking off early losses from the widely expected OPEC decision and instead focused on falling oil rig counts, which fell for a record 26 weeks in a row according to Baker Hughes. While we could see an upgrade in U.S. output, the continuing drop in U.S. rigs at some point will take its toll. The U.S. oil-rig count fell by four to 642. That means there are 60% fewer rigs working since a peak of 1,609 in October. It was a good day if you bought the break and put on those bullish options like we recommended.