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Will Global Crude Oil Demand Match Production levels?

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Global production

The EIA (U.S. Energy Information Administration) reported that global oil inventory builds in the 3Q15 averaged 1.6 million barrels per day, falling by 0.4 million barrels per day in comparison with the second quarter. Further, the EIA expects the inventory builds to come down in 4Q15 to 1.2 million barrels per day.

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Non‐OPEC petroleum and other liquids

The EIA expects non-OPEC[1. Countries outside of the Organization of Petroleum Exporting Countries] production to grow by 1.1 million barrel per day in 2015, and then fall by 0.3 million barrels per day in 2016. In October’s Short-Term Energy Outlook, non-OPEC production was forecast to rise by 0.1 million barrels per day. The shift in expectation from non-OPEC production growth to fall in 2016 is mostly derived from lower expected growth in Canada, and larger expected falls in US onshore production.

OPEC petroleum and other liquids

The EIA forecast OPEC crude oil production to an average 30.1 million barrels per day in 2014, expected to rise by 0.9 million barrels per day in 2015, led by production rises in Iraq and Iran. The EIA also forecast OPEC crude oil production to rise by 0.2 million barrels per day in 2016.

Global demand

The EIA estimated global consumption of petroleum and other liquids at an average 92.4 million barrels per day in 2014. It expects the global consumption of petroleum and other liquids to grow by 1.4 million barrels per day in both 2015 and 2016.

From the above production and demand data, we can observe that oil consumption growth is less than the production. Even though the fourth quarter’s production levels are expected to fall, this doesn’t have much impact on crude oil prices due to massive stockpiles.

Crude oil production is outpacing consumption, and this doesn’t appear to be good for oil prices. In fact, it’s impacting the margins of oil producers like Anadarko Petroleum (APC), Chevron (CVX), Cimarex Energy (XEC), Occidental Petroleum (OXY), Murphy Oil (MUR), and Hess (HES).

Chevron (CVX) accounts for 11.2% and 12.4%, respectively, of the Vanguard Energy ETF (VDE) and the Energy Select SPDR (XLE).

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