US crude production has risen from 10.0Mb/d in mid-2021 to 11.8Mb/d two weeks ago (Chart #42). With increased drilling in the prolific Permian basin and more capital being invested to increase production, we expect to see overall US volumes exceed 12.0Mb/d this quarter and 12.5Mb/d by the summer. We do not see getting production back to the peak level seen in early 2020 of 13.1Mb/d this year unless the Biden administration changes its anti-energy policies for domestic production. If the Congress (either or both the House & Senate) go Republican this November, then Congress can overrule President Biden early next year and the US industry will get the go-ahead to increase production meaningfully again.
Crude prices have stayed lofty due to winter demand and the cheaper use of heating oil versus very high priced natural gas on international markets. The price of natural gas is over US$30/mcf in Europe and Asia so use of heating oil during the current winter shortages and high prices is economic. Once winter is over we see prices of natural gas and oil retreating significantly.
Another reason for current high prices is some OPEC members are not able to lift production to their raised quotas due to under-investment or infrastructure problems (Libya and Nigeria).
One last reason: last week a political issue added to the rise in crude prices. Kazakhstan erupted with unrest and Russia deployed military forces from the Collective Security Treaty Organization (the CST), the new Soviet equivalent of NATO, to stabilize the country. The members include Russia, Belarus, Tajikistan, Kyrgyzstan and Armenia. The current Chairman Armenian Prime Minister Nikol Pashinyan authorized the military support. Of course Russia was the leading force and provides the most military manpower for this new peacekeeping force.
We see crude prices retreating in the near term if the general stock market is under duress and inter-market margin calls hit the very liquid energy futures area. Our WTI price target once the military/political issues are discounted and winter ends, is for a decline to the USS$60-64/b area (Chart #43). If we get into Q2/22 (post winter) with lower energy consumption and more supplies as noted above then a market meltdown could happen with the Dow Jones Industrials breaching 30,000 and the FAANGM and MEME stocks melting down and WTI crude falling to the US$48-54/b area in late Q2 or during Q3/22.