Crude oil prices are continuing the rally with the spot WTI contract currently breaching the three-week old technical range resistance level. The market has been in a discounting the bearish news and embracing all bullish data points. The market has mostly ignored yesterday’s Energy Information Administration (EIA) short-tern energy outlook report (see the highlights below), which forecast supply to outstrip demand through 2016.
In addition the EIA raised its projection for U.S. crude production compared to last month while increasing their forecast for global oil demand only marginally.
This morning the Organization of the Petroleum Exporting Countries (OPEC) released its monthly oil assessment. They kept global oil demand the same as in last month’s forecast and said they do not see an increase in demand for OPEC crude. In contrast to the EIA report they said they expect the oversupply situation to ease over the coming quarters.
Overall the current fundamental projections (IEA report due out tomorrow) are still biased to the bearish side. Last night the American Petroleum Institute (API) showed a large draw in total U.S. crude oil stocks as well as in Cushing, Okla., inventories. This is also supporting today’s buying as the market awaits the more widely followed EIA oil inventory report later this morning.
The EIA released their latest STEO report. Following are the main oil highlights.
• Global liquids production continues to exceed consumption, resulting in inventory builds. Global oil inventory builds are projected to average 2.2 million b/d through the first half of 2015 and average 1.6 million b/d during the second half of the year, with the reduction in builds reflecting rising demand and slowing production growth outside of OPEC, particularly in the United States. The expected inventory builds in 2015 are on top of an estimated average 1.1 million b/d increase in 2014. By 2016, expected inventory builds moderate to 0.8 million b/d as non-OPEC supply growth slows and demand continues to rise.
• EIA estimates global consumption of petroleum and other liquids grew by 0.9 million b/d in 2014, averaging 92.0 million b/d for the year. EIA expects global consumption to grow by 1.3 million b/d in both 2015 and 2016. Forecast global consumption growth was revised modestly upward from last month's STEO, as lower oil prices stimulate global demand growth more than previously expected. Projected real gross domestic product (GDP) weighted for oil consumption, which increased by an estimated 2.8% in 2014, is projected to grow by 2.4% in 2015 and by 3.0% in 2016.
• EIA estimates that non-OPEC production grew by 2.3 million barrels per day in 2014, mainly as a result of output growth in the United States. EIA expects non-OPEC production to grow by 1.3 million barrels per day in 2015 and by 0.2 million barrels per day in 2016. Forecast non-OPEC production growth was revised upward from last month's STEO by an average of 0.5 million barrels per day in 2015, to account for historical revisions to first quarter U.S. production and increases to forecast Canadian production. After remaining relatively flat in 2015, production in Eurasia is projected to decline by almost 0.2 million barrels per day in 2016. The projected decline reflects reduced investment in Russia's oil sector stemming from low oil prices and international sanctions.
• EIA estimates that OPEC crude oil production averaged 30.1 million b/d in 2014, unchanged from the previous year. Crude oil production declines in Libya, Angola, Algeria, and Kuwait offset production growth in Iraq and Iran. In EIA's forecast, OPEC crude oil production rises by 0.6 million barrels per day in 2015 and falls by 0.2 million barrels per day in 2016. Iraq is expected to be the largest contributor to OPEC production growth in 2015. At the June 5 OPEC meeting, the group did not change its 30 million barrels per day crude oil production target. EIA forecasts OPEC crude oil production will continue to exceed that target over the forecast period, contributing to the expected global inventory builds.
• U.S. crude oil production is projected to increase from an average of 8.7 million barrels per day in 2014 to 9.4 million barrels per day in 2015 and then decline to 9.3 million barrels per day in 2016. The forecast is 0.2 million barrels per day and 0.1 million barrels per day higher for 2015 and 2016, respectively, than in last month's STEO. The increase in the crude oil production forecast reflects upward revisions to estimated production in the first quarter of 2015.
• EIA estimates that U.S. crude oil production averaged almost 9.6 million barrels per day in May 2015. This level is almost 0.4 million b/d higher than the average production during the fourth quarter of 2014, despite the 60% decline in the total U.S. oil-directed rig count since October 2014. Production has increased as producers work through the backlog of uncompleted wells (completing more wells than they are drilling) and achieve potentially better completions with higher initial production rates.
• EIA expects U.S. crude oil production will begin to decline in June, with continuing declines through early 2016, when total production is forecast to average 9.2 million barrels per day in the first quarter. Production is forecast to begin rising in the second half of 2016, returning to an average of 9.6 million barrels per day in December as new projects are scheduled to come online in the Gulf of Mexico.
• EIA estimates that OECD commercial oil inventories totaled 2.72 billion barrels at the end of 2014, the highest end-of-year level on record and equivalent to roughly 59 days of consumption. Projected OECD oil inventories rise to 3.00 billion barrels at the end of 2015 and then to 3.09 billion barrels at the end of 2016.