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CNBC | Tom DiChristopher | June 6, 2017

The U.S. Department of Energy on Tuesday signaled it is now more confident that U.S. oil production will rise to 10 million barrels a day next year, the highest average annual level on the books.

The department's Energy Information Administration forecast output would surge to the historic level in 2018 after last month projecting the country would produce just shy of 10 million barrels a day next year. The previous record average was 9.6 million barrels a day in 1970.

"Increased drilling activity in U.S. tight oil basins, especially those located in Texas, is the main contributor to oil production growth, as the total number of active rigs drilling for oil in the United States has more than doubled over the past 12 months," EIA acting Administrator Howard Gruenspecht said in a statement.

The revision is another sign that U.S. drillers are taking full advantage of higher oil prices buoyed by OPEC's deal with crude exporters to limit production in a bid to shrink a global oversupply. Output in the American oil patch has surged about 9 percent to 9.3 million barrels over the last eight months.

Throughout a nearly three-year downturn, American oil companies have driven down the cost of advanced drilling methods, allowing them to pump profitably, even with U.S. West Texas Intermediate crude trading between about $45 and $55 a barrel — roughly half of peak 2014 prices.

The EIA revised down its outlook for prices in 2018 on Tuesday, raising the prospect that U.S. drillers might have to live with thinner profit margins next year.

The agency now sees WTI averaging $53.61 a barrel next year, down 2.7 percent from a forecast of $55.10 in last month's short-term energy outlook. It also revised down its price expectation for international benchmark Brent crude by 2.6 percent.

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