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Crude Bull Market: Do Fundamentals Say It's Time for Correction?

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Part 3
Crude Bull Market: Do Fundamentals Say It's Time for Correction? PART 3 OF 6

How Global Crude Oil Inventory Will Limit the Upside for Crude Oil

Global crude oil inventory

The International Energy Agency (or IEA) reported that global crude oil stocks are at a record 3 billion barrels. The EIA (U.S. Energy Information Administration) reported that global crude oil inventories were at 3.0 billion barrels at the end of 2015.

How Global Crude Oil Inventory Will Limit the Upside for Crude Oil

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China crude oil inventory

China increased its strategic reserves by 100 MMbbls (million barrels) in 2015 and is expected to increase its strategic crude oil reserves by 60 MMbbls in 2016. Saudi Arabia has crude oil reserves in excess of 180 MMbbls. To learn more about the US crude oil inventory, read the previous part of the series.

Global crude oil inventories forecast 

The EIA (U.S. Energy Information Administration) reported that global crude oil inventories are estimated to rise by an annual average of 1.6 MMbpd (million barrels per day) in 2016. Then, it will increase by 0.6 MMbpd in 2017. The EIA forecasts that global crude oil inventories will rise to 3.2 billion barrels at the end of 2016. Then, it will further rise to 3.3 billion barrels at the end of 2017.

This inventory rise is higher than what was previously forecasted. This would delay the balance of global crude oil supply and demand. The record global inventories will limit the upside for crude oil prices. 

Low crude oil prices negatively affect the margins of oil and gas exploration and production companies like Cimarex (XEC), Carrizo Oil & Gas (CRZO), Denbury Resources (DNR), Comstock Resources (CRK), and Northern Oil & Gas (NOG). For more information on US energy companies’ financial woes, read US Oil and Gas Companies’ Debt Exceeds $200 Billion and Crude Oil’s Total Cost of Production Impacts Major Oil Producers. 

ETFs  

The ups and downs in crude oil prices affect ETFs and ETNs like the ProShares Ultra Oil & Gas (DIG), the Guggenheim S&P 500 Equal Weight Energy (RYE), the United States Brent Oil (BNO), and the United States 12 Month Oil (USL).

Read the next part of the series to learn more about crude oil price seasonality.

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