U.S. oil production topped seven million barrels per day for the first time since March, 1993 and is nearly 20 percent above the amount produced at this time last year.
The latest weekly data from the Energy Information Administration Wednesday again highlights how the growing role of the U.S. as a major energy producer is changing the dynamic of the energy market. As domestic production rose, U.S. imports fell in the week ended Jan. 4 to 7.9 million barrels per day, 10 percent below the four-week average and nearly 16 percent below the level imported in the same period last year.
U.S. oil production continues to accelerate at a surprising rate, and the government this week predicted in its short term energy outlook that the U.S. industry could pump 14 percent more oil this year alone. The use of non conventional drilling techniques in places like North Dakota and Texas has created an explosion in U.S. production to the point where the U.S. is expected to surpass Saudi Arabia in crude production by 2020, according to International Energy Agency statistics.
At the same time, the industry is developing more pipeline capacity to carry landlocked U.S. crude from storage in Cushing, Okla. to the Gulf Coast refining areas. That should continue to drive the trend, create more refined product for the U.S. and export markets, and bring down some oil prices in the next several years, according to the EIA.
In the next few days, a significant pipeline expansion is coming on line as the Seaway pipeline adds 250,000 barrels a day in capacity from Cushing to its current 150,000 barrels. In anticipation, the market has compressed the spread between U.S.-produced West Texas Intermediate and the international bench mark Brent crude, to about $18, the narrowest level since September.
"There's high hopes for what this Seaway pipeline will do for the WTI market, and that spread. There's a lot of expectations around that right now," said John Kilduff of Again Capital.
(Watch Now: Seaway & Keystone Help Oil Prices?)
The energy market has been trading these macro trends, and on Wednesday, both WTI and Brent were trading lower. WTI was just above $93 per barrel. EIA oil and refined product inventory data showed an increase in crude inventories of 1.31 million barrels for the week. Gasoline stocks, however, showed a surprisingly steep increase to 7.4 million barrels. Refineries were running at 89.1 percent.
The EIA short-term outlook, released Tuesday, included raised expectations for 2013 and its first forecast for 2014.