Drop in US oil production drives oil prices up sharply

Oil prices made strong gains yesterday afternoon. At its peak, Brent increased by more than 4% to just shy of $58 per barrel, while WTI surged by more than 5% to $50.5 per barrel. 

The upswing was triggered by data from the US Department of Energy, which showed that US crude oil production had declined for the first time in eight weeks. Although US oil production also fell in some weeks during December and January, this was almost certainly due to shale oil production in North Dakota being hampered by cold winter weather. 

This is not something that can explain the current decrease in production. Indeed, it could well be an indication that the slump in drilling activity since the beginning of the year is now starting to be reflected in the hard production data. This would also tally with the latest statements by the US Energy Information Administration (EIA), which anticipates a decline in oil production in three of the four major US shale oil formations in April. 

"The coming weeks will reveal whether the current fall actually marks a reversal in the US oil production trend. Oil prices shed some of their gains again overnight. This is because there is still a considerable oversupply, as also evidenced in further rising US oil stocks", says Commerzbank. 

Last week saw US crude oil stocks increase for the twelfth consecutive time, crude oil stocks at Cushing even growing for the seventeenth week in a row.