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Crude Oil: Narrowing Global Inventories and Increasing Consumption

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Global crude oil consumption

The EIA (U.S. Energy Information Administration) published its monthly STEO (Short-Term Energy Outlook) report on June 9, 2015. According to the report, EIA estimates show that global crude oil consumption increased by 0.9 MMbpd (million barrels per day) to 92 MMbpd in 2014. EIA estimates show that oil demand will continue to increase by 1.3 MMbpd in 2015 and 2016. The rising demand could support crude oil prices.

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China would be the key driver for crude oil demand from Asia—followed by Japan and India. Slowing economic growth in China is expected to slow down Chinese demand for crude oil. China’s demand for crude oil is expected to increase by 0.3 MMbpd in 2015—compared to a decline of 0.4 MMbpd in 2014. India’s crude oil consumption is expected to increase by 0.2 MMbpd in 2015—compared to an increase of 0.1 MMbpd in 2014. Japan’s consumption is expected to slow down in 2015 and 2016. In contrast, oil consumption in the US and Europe is expected to rise in 2016.

The rising global demand estimates in 2015 and 2016 could narrow down the global crude oil surplus. The global crude oil inventory is expected to be at 2.2 MMbpd in the first half of 2015. In 2H15, it’s expected to decline to 1.6 MMbpd. The declining global crude oil inventory and estimates of rising demand could support crude oil prices.

However, countries like the US, Russia, Brazil, and Libya continue to produce more crude oil. This puts pressure on crude oil prices. Long-term, lower oil prices impact energy producers like Rosetta Resources (ROSE), Continental Resources (CLR), and Oasis Petroleum (OAS). They account for 3.67% of the SPDR Oil and Gas ETF (XOP). Oil and gas ETFs like the Energy Select Sector SPDR ETF (XLE) and XOP dropped in yesterday’s trade—in line with the WTI (West Texas Intermediate) crude oil price movement.

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