Notes on Oil 13012016

Demand

The Middle East is not just about oil supply, but also oil demand – low energy prices mean lower export revenues, which in turn will mean lower demand for oil from the Middle Eastern countries.

oildemand

Production and Inventories

Today, the U.S. Energy Information Administration reported that inventories at Cushing are at a record high with crude stockpiles climbing by 97 000 barrels in the latest week. At 482.6 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years.

According to the EIA, “since 2012 the United States has been the source of much of the global increase in production of petroleum and other liquids. In 2016 and 2017, however, members of the Organization of the Petroleum Exporting Countries (OPEC) are expected to account for most of production growth. EIA expects non-OPEC production to decline by 0.6 million b/d in 2016, which would be the first decline in non-OPEC production since 2008. About two-thirds of this forecasted decline in 2016 comes from the United States”.

eiaforec

All in all, inventories are forecast to rise by an additional 0.7 million b/d in 2016, before the global oil market becomes relatively balanced in 2017.

Non-OPEC production is driven by the US and for OPEC production, eyes will be on Iran as sanctions on oil are lifted.

Price

crude2016

STEO forecasts Brent crude oil to be about $40 in 2016 and $50 in 2017, although to date, there is high uncertainty in the price outlook. Prudent to say, a reasonable expectation of supply continuing to outstrip demand points to the price being lower for longer.

From the Guardian,

Joshua Mahony, market analyst at IG, said:

In yet another reflection of the fragility of financial markets, what was expected to be a rare green day for the FTSE is becoming increasingly likely to turn red once more, as oil prices tumble in the wake of the US crude inventory number. A mix of strong Chinese trade data overnight, and an indication that Russian crude output could be cut in the coming months, managed to provide a lift with US crude prices rising relatively calmly and consistently. However, much like a house of cards, something that took the whole day to build has been blown down in the space of five minutes. The fact that a lower than expected US crude inventories figure would typically be supportive for oil prices goes to show that for now the oil market is finding buyers hard to come by in the face of such intense selling.

Add: http://www.economist.com/news/finance-and-economics/21685485-american-oil-exports-have-boosted-wti-benchmark-now-crude-measure (very good article)

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