Tuesday’s trading in the energy market was driven with a bullish sentiment following a similar pattern from Monday. Tuesday’s trading session was fueled by a supportive Energy Information Administration (EIA) report, positive comments from Saudi Oil Minister Naimi, positive comments from Goldman Sachs and a growing view that the worst is over and a crude oil bottom may have occurred (see chart below).
The market was led by WTI with the Brent/WTI spread narrowing once again as the market is starting to look at the potential for more oil hitting the international markets and thus a negative for the Brent side of the equation while the surplus in the United States may be nearing its peak…although one would not know that based on the huge crude oil build reported by the American Petroleum Institute (API).
The EIA released its latest Short Term Energy Outlook (STEO) report on Tuesday. The forecast was overall supportive in that they increased their demand forecast while lowering their supply projections including the United States. Following are the highlights from the report.
· As in last month's STEO, global production continues to exceed demand, resulting in inventory builds. Global oil inventory builds are projected to average 1.7 million bbl/d through the first half of 2015. Inventory builds moderate during the second half of the year, as demand rises and non-Organization of the Petroleum Exporting Countries (OPEC) supply growth slows, particularly in the United States, because of lower oil prices. The expected inventory builds in 2015 are on top of an estimated average 1.0 million bbl/d increase in 2014.
· Iran is believed to hold at least 30 million barrels in storage. It is possible that Iran will attempt to move oil out of storage more quickly sometime during the second half of 2015 in preparation to increase production if discussions on sanctions show progress. As a result, the global market may see incremental increases in Iran's crude oil exports before seeing a substantial increase to Iran's production, but the pace at which oil in storage could be withdrawn is uncertain.
· EIA says that Iran has the technical capability to ramp up crude oil production by at least 700,000 bbl/d by at least the end of 2016, of which 600,000 bbl/d represents capacity that was previously shut in and 100,000 bbl/d is new capacity.
· U.S. crude oil production is projected to increase from an average of 8.7 million bbl/d in 2014 to 9.2 million bbl/d in 2015 and to 9.3 million bbl/d in 2016, which is 0.1 million bbl/d and 0.2 million bbl/d lower than forecast in last month's STEO, respectively. The reduction in the crude oil production forecast reflects rig counts falling faster than EIA had initially expected, as oil-directed rigs have declined to the lowest level in more than four years as of late March.