The surge in US production is being driven by output from shale fields, where drillers use advanced methods like hydraulic fracturing to squeeze oil and gas from tight rock formations.
The Energy Information Administration (EIA) of the U.S. Department of Energy said U.S. production would average 10.3 million barrels per day this year, the highest output levels ever for the country. "Domestically, things are lining up in terms of moderate prices and increased opportunity for production". "But market participants could also use the sharp drop in production as an excuse to buy", said Carsten Fritsch, oil analyst at Commerzbank AG in Frankfurt, Germany. The best grades of USA crude are now priced at almost $63 a barrel, high enough to convince shale oil producers to expand drilling and production. The highest prices were in September.
A broad, global market rally, including stocks, has also fed investment into oil futures.
Expectations of another drain on USA crude oil inventories supported a soft increase in oil prices early Tuesday, though a reversal may be overdue.
Sources OPEC BP and EIA
"When it comes to hedge fund buying in general the commodities trade is front-and-center and that momentum is building for oil", said Rob Thummel, portfolio manager at energy investment manager Tortoise in Leawood, Kansas.
Consumers will face gasoline and heating oil price increases this year despite a federal forecast for record-breaking domestic oil production.
Total products supplied over the last four-week period averaged 20.6 million barrels per day, up by 5.6 percent from the same period a year ago. As U.S. shale producers blaze ahead at turbo-speed, the EIA's number crunchers have taken note.
The U.S. shale boom played a major part in a historic price collapse in 2014, and the recovery from shale fields threatens to weigh on oil prices.More news: New York Mayor sues five largest oil companies over global warning