U.S. crude oil production fell 150,000 barrels per day in May and the global over-supply of liquids was 680,000 barrels per day.

The EIA Short-Term Energy Outlook (STEO) posted on June 7 showed that U.S. oil production declined by the greatest monthly amount so far since the peak in April 2015 (Figure 1).

Production has declined 950,000 barrels of oil per day (bopd) from 9.69 million bopd in April 2015 to 8.6 mmbopd last month. EIA forecasts that production will decrease another 650,000 bopd by September for a total decline of 1.6 mmbopd since April 2015.

Declining U.S. production, an outage of 800,000 bopd because of Canadian wildfires, along with outages in Nigeria and Venezuela of perhaps 1 mmbopd are pushing oil prices higher and contributing to falling U.S. crude oil comparative inventories (Figure 2).

Comparative inventories are the most timely and reliable indicators of oil-price change. Figure 2 shows that comparative inventories fell sharply before the March-August and August-October 2015 oil-price rallies, and also fell along with the present price rally that began in March 2016. WTI futures are trading above $51 per barrel today.

The June STEO also shows that the global liquids over-supply for May was essentially flat with April at 680,000 bpd (Figure 3).

Supply fell 410,000 bpd and consumption fell 470,000 bpd–consumption typically falls in the second quarter before increasing in June or July as northern hemisphere seasonal usage peaks. World market balance (supply minus consumption) has been improving since late 2015 and early 2016. This is partly because of outages also.

I expect U.S. production and world market balance trends to continue to favor stronger crude oil prices although it is likely that the same cyclicity that has characterized prices since the price collapse in late 2014 will continue.