Morgan Stanley Sees Robust U.S. Oil Output Even as Drillers Cut

U.S. crude output will end the year near the record level it started at even after drillers more than halved the number of rigs seeking oil, according to Morgan Stanley.

The stubbornly resilient daily production sets the nation up for another large increase in stockpiles during the first half of 2016, this time from a higher starting point, according to an e-mailed report Monday from Morgan Stanley analysts including Adam Longson. Supplies in the U.S. are almost 100 million barrels above the five-year average for this time of the year, according to government data.

The U.S. is pumping near the fastest rate in three decades, even as crude prices slip into a bear market on signs the nation’s glut will persist and amid a broader selloff of commodities. While producers boosted the number of rigs seeking oil for the third time this month the number of machines has plunged almost 60 percent during a protracted drop since December, according data from to Baker Hughes Inc.

“We continue to see several negative overhangs for oil,” Morgan Stanley analysts said in the report. Demand falling from a seasonal peak, an increase in Canadian supply and reduced buying from funds are among the headwinds that will weigh on prices in the second half of 2015, the analysts wrote.

West Texas Intermediate’s rebound from a six-year low has faltered, with prices falling more than 20 percent since the peak reached in June, meeting the common definition of a bear market. Futures slid as much as 0.7 percent Monday to $47.79 a barrel after declining 5.4 percent last week.

U.S. Output

Crude production in the U.S., the world’s biggest oil consumer, was at 9.56 million barrels a day through July 17, according to data from the Energy Information Administration. It ended last year at 9.12 million barrels a day after averaging 8.54 million a day last year, according to the EIA.

It peaked this year at 9.61 million a day through June 5, the highest level in weekly data since January 1983.

The Bloomberg Commodity Index of 22 raw materials extended its decline Monday for a fourth day after falling to a 13-year low Friday. The Bloomberg Dollar Spot Index, a gauge of the greenback versus 10 major peers, lost 0.2 percent after adding 0.1 percent through July 24 in its fifth weekly advance.

A reversal in the dollar index, a large geopolitical event or supply outage, is required for prices to climb higher, according to Morgan Stanley.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE