U.S. crude oil production may be falling faster than many had thought and we are seeing signs of that in Cushing, Okla. Cushing is the Nymex delivery point and a storage facility that if you listened to the Ultra Bears was supposed to be overflowing with oil. Instead the opposite is happening as supply there has fallen five out of the last seven weeks and is slated to fall once again.
In fact, a report from the private forecasting agency Genscape is saying that supply in Cushing fell a whopping 1.8 million barrels. While many have been focused on overall crude supply the real story is in Cushing. That story is that U.S. oil production is falling faster than previously reported.
That also means that crude oil prices are still on track for a big rebound later this year unless we have a major economic shock. Low prices have consequences and crashing prices have larger consequences. We are seeing more cap x cuts and there is going to be more pain to come.
The Wall Street Journal reports that "Oil patch braces for financial reckoning" as smaller producers are girding for cuts to credit lines as crude prices show little sign of rebounding. The article also says that "energy companies have defied financial gravity for more than a year, borrowing and spending billions of dollars to pump oil even as crude prices plummeted. Until now.
The oil patch is expected to finally face a financial reckoning, experts say, with carnage occurring as early as this month. One trigger: Smaller drillers are bracing for cuts to their credit lines in October as banks re-evaluate how much energy companies' oil and gas properties are worth. But with oil trading below $45 a barrel, bigger oil outfits are struggling to stay profitable, too."
Of course, that means U.S. output will fall and it will fall more that the International Energy Agency and OPEC believe.
Gasoline futures fell 4.8% yesterday the lowest levels since January.