According to the Energy Information Administration’s Monthly Energy Review database, world field production of crude oil in September was up 1.5 million barrels a day over the previous year. More than all of that came from a 440,000 b/d increase in the U.S., 550,000 b/d from Saudi Arabia, and 900,000 b/d from Iraq. If it had not been for the increased oil production from these three countries, world oil production would actually have been down almost 400,000 b/d over the last year.



But the U.S. situation will be very different in 2016. The number of active U.S. oil rigs today is about a third of the levels reached in 2014. JODI’s separate database estimates that U.S. oil production was already down year-over-year by October 2015. And the EIA’s drilling productivity model estimates that production from the U.S. counties associated with the tight oil boom will have fallen another 500,000 b/d from the September values by the end of next month.

Still, it is hard to see prices increasing until U.S. inventories begin to come down.

The much-discussed increase from Saudi Arabia only puts the kingdom’s oil production back to where it had been in August 2013.

It’s worth noting that also leaves Saudi exports of crude oil significantly below their recent peak. One important factor in the increased Saudi crude production since last year was the need to supply its greatly expanded refinery capacity. As a result, Saudi Arabia is now exporting more refined products in place of crude oil.

The big story up to this point has been Iraq. The country continues to log impressive increases in production despite ongoing turmoil in the region.

And next up will be Iran, whose production has been depressed as a result of international sanctions that are now being lifted. Iran intends to increase oil exports by 500,000 b/d right away, in addition to the 30 million barrels Iran has stored in oil tankers in the Persian Gulf.

Even so, there’s clearly more than just new oil supplies from the Middle East influencing the market. Since I last updated these calculations in September, the dollar has appreciated 3% against our major trading partners, and the price of copper has fallen 16%. Based on a weekly historical regression of oil prices on these variables along with the 10-year Treasury yield, we would have predicted a 10% drop in the price of WTI from $46/barrel in $41.50 today on the basis of changes in the exchange rate, copper price, and interest rates since September, explaining about a third of the drop in oil prices since September from international factors that are not unique to oil markets.

Bob Barbera discussed the role of slowing world GDP growth as one of those factors. His graph below shows that the observed slowdown in world GDP since 2010 (shown in red in the graph below) could easily account for much of the drop in commodity prices through 2014 (in green). Barbera speculates on the basis of the numbers for Chinese rail shipments and electricity production that the true Chinese GDP growth for 2015 may have been significantly below the country’s official target of 7%. The dashed red line in the graph below is Barbera’s “what-if” calculation supposing we impute 2.5% real GDP growth to China instead of the 6.8% number that IMF is estimating that we will see in China’s official numbers for 2015, an exercise that could explain much of the drop in general commodity prices through last year.

The 44% drop in Chinese stock prices since last summer suggests that this kind of what-if calculation should be taken seriously.

If Iranian production is about to surge, Iraqi production remains high, and the Chinese economy is stumbling, that can only mean that even bigger drops in U.S. oil production are inevitable.