Crude oil demand
The IEA (International Energy Agency) forecasted that the global crude oil markets will suffer from surplus supplies of 1.5 MMbpd (million barrels per day) in the first half of 2016. It also forecasted that non-OPEC supply is set to fall by 0.6 MMbpd in 2016. A slowdown in the Chinese economy and Iran’s production levels could add a surplus to the global crude oil markets.
Warm weather and economic weakness
The crude oil demand growth fell to a one-year low in 4Q15. Mild winter temperatures reduced the usage of distillate fuels. Economic weakness in some European and Asian countries decreased the gasoline demand. The diesel fuel and gasoline demand didn’t match the anticipated demand levels. So, the crude oil demand fell in 4Q15.
Removing the sanctions on Iran will add 1.10 MMbpd to its present exports. This will add more glut in the crude oil markets. They’re suffering from a surplus of 1.7 MMbpd. The lower demand forecast, due to a slowdown in China and Japan, will have a negative impact on crude oil prices. So, lower crude oil prices will extend into 2016.
Lower demand for crude oil will bring the prices to the floor. This could have a negative impact on crude oil producers’ profitability like Cimarex Energy (XEC), Apache (APA), Occidental Petroleum (OXY), Murphy Oil (MUR), and Hess (HES).
The IEA forecasts
The IEA forecasted that consumption growth will fall by 1.3% in 2016. This means that the consumption growth will fall from 1.7 MMbpd in 2015 to 1.2 MMbpd in 2016. According to the IEA’s report, the total consumption will average 95.7 MMbpd in 2016.
In the next part, we’ll provide more updates on crude oil prices.