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Crude Oil Market: Insights from the EIA’s STEO Report

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Sep. 10 2015, Published 7:32 a.m. ET

STEO report—August and September 2015 editions

The EIA (U.S. Energy Information Administration) released its monthly STEO (Short-Term Energy Outlook) report on September 9, 2015. The September edition showed that global crude oil production in 2016 could average around 96.03 MMbpd (million barrels per day). It also projected that global consumption could average around 94.93 MMbpd in 2016. It means that the global surplus could average around 1.10 MMbpd in 2016 and 2.05 MMbpd in 2015.

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In the August edition of the STEO report, the US agency estimated that global production could average around 96 MMbpd in 2016. Likewise, it estimated that global consumption could average around 95.08 MMbpd in 2016. It means a global excess of 0.92 MMbpd in 2016. The 2015 crude oil surplus is projected at 2.05 MMbpd.

EIA’s estimates are too conservative 

The global energy market has been in turmoil. The speculation of a Chinese economic slowdown has been dragging the commodity market to new lows. However, these slowing consumption figures haven’t factored in the EIA’s estimates. The estimates seem to be too conservative considering the current market volatility.

On the production side, the EIA hasn’t factored in the speculation of a rise in production from Iran. This signifies that we could see more surpluses in 2016—compared to the EIA’s estimates. The EIA estimates that the crude oil surplus could fall by 1 MMbpd in 2016. This doesn’t seem viable considering the Chinese, European, and Japanese slowdown.

The rising surplus in the crude oil market will continue to put pressure on crude oil prices and crude oil producers. US producers like EOG Resources (EOG), Anadarko Petroleum (APC), and Noble Energy (NBL) will be negatively impacted due to falling crude oil prices. These stocks account for 7.21% of the Energy Select Sector SPDR ETF (XLE). These companies’ crude oil production mix is also more than 41% of their production portfolio.

The roller coaster ride of crude oil prices also impacts oil and gas ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and XLE.

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