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Will 2017 or 2018 Mark the Return of the Bulls?

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Dec. 4 2020, Updated 10:52 a.m. ET

Crude oil supply and demand 

The EIA (U.S. Energy Information and Administration) published its monthly STEO (Short-Term Energy Outlook) report on January 12, 2016. It reported that the global crude oil production will rise to 95.9 MMbpd (million barrels per day) in 2016 and 96.7 MMbpd in 2017. The global crude oil production was at 95.7 MMbpd of crude oil in 2015. The global oil consumption is expected to average 95.2 MMbpd in 2016 and 96.6 MMbpd in 2017.

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US crude oil production 

The EIA reported that US production could fall to 8.7 MMbpd in 2016 and 8.5 MMbpd in 2017. The US produced 9.4 MMbpd of crude oil in 2015. Slowing US production could benefit crude oil prices.

Crude oil supply and demand gap 

Slowing US production could narrow the supply and demand gap in 2016 and 2017. However, record production from OPEC  and scaling Iran’s production could balance the oil market. How long? The EIA expects the crude oil supply and demand gap to be around 0.8 MMbpd in 2017. Speculation of an improving Chinese economy and improving demand in 2017 are key catalysts for higher oil prices in 2017 and 2018.

Lower oil prices benefit US refiners like Phillips 66 (PSX), Tesoro (TSO), and Valero Energy (VLO). In contrast, higher crude oil prices benefit producers like Anadarko Petroleum (APC), ConocoPhillips (COP), Oasis Petroleum (OAS), and EOG Resources (EOG). Oil producers like Whiting Petroleum (WLL) and Newfield Exploration (NFX) got a credit upgrade from Wells Fargo despite the depressed energy market. These companies would outperform when oil prices rebound.

The volatility in oil prices impacts ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the Vanguard Energy ETF (VDE), and the VelocityShares 3x Long Crude Oil ETN (UWTI).

Read the next part of the series for the latest crude oil price forecast.

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