In addition to recent financial markets turmoil, the crude markets have been under price pressure from concerns over surging US crude production, punctuated by a sharp upgrade in forecasts from the EIA in its Short-Term Energy Outlook (STEO) this week. In fact, the February STEO featured a 317 kbpd jump in its 2018 forecast for US crude production from its January report, which was also 668 kbpd above its October forecast (shown above).
The April 2018 WTI contract has given up more than $5/bbl this week on these concerns, which may be overstated, since re-benchmarking and methodology adjustments have driven the surge in EIA estimates. After all, the latest weekly estimate of US crude production (for the week ending 02 Feb) jumped by 332 kbpd week-over-week, to 10,251 kbpd, after averaging 28 kbpd of weekly gains during the previous 13 weeks. Similarly, the monthly data for November 2017, released a week ago, surged by 384 kbpd over the October estimate, also reflecting the recent changes in EIA modelling and reporting.
The EIA actually tried to inform market participants about these changes ten days ago in a presentation, following up on a November 2017 webinar. Most oil analysts recognise this and know that the EIA will make upward adjustments their historical database accordingly. This higher level of crude production has already flowed through the system and the price movements reflect this. The supply/demand balance has not changed and the near-term rises in production are consistent with the recent rise in rig counts and estimated rig productivity. Only market perception has changed.