United States oil production is falling off a cliff. That's the message being sent by the latest data from the Energy Information Administration, the statistical arm of the U.S. Department of Energy.
According to the EIA's weekly report on the state of U.S. oil supplies, crude output in the country dipped to 9.12 million barrels per day last week, the lowest level since November 2014. Output is now down 493,000 barrels per day, or 5.1 percent, from the peak levels of 9.61 million barrels per day in June.
US Crude Oil Production
That's a stunning decline in a short period of time, suggesting that the yearlong plunge in oil prices and the sharp reduction in drilling activity are finally having an impact.
Of course, for an oil market that was severely oversupplied heading into this year, the drop in the U.S. production was necessary. The market simply could not continue to absorb the breakneck 1-million-barrel-per-day annual increase in U.S. output seen during the last few years.
Were it not for large supply disruptions in Libya and Iran in that period, prices would have plummeted a long time ago.
Of course, the oil market's problems were compounded by the Organization of the Petroleum Exporting Countries' shocking decision last year to raise production in the face of declining prices, as well as the weakest demand growth since the financial crisis in 2014, and the anticipated re-emergence of Iran into the world oil market.
In that context, it's clear to see why a downturn in oil prices and U.S. production was necessary to rebalance the market.