Bullish catalyst for crude oil demand
In this part of the series, we’ll look at India’s and China’s crude oil demands and other bullish factors over the long term.
Bullish drivers for crude oil demand
- India’s crude oil imports rose by 13% to 4.3 MMbpd (million barrels per day) in June 2016 compared to the same period in 2015. The International Energy Agency (or IEA) reported that India will account for 25% of global crude oil demand growth up to 2040. To learn more, read India’s Crude Oil Demand Will Likely Drive the Crude Oil Market.
- The EIA (U.S. Energy Information Administration) reported that India plans to build three strategic petroleum reserves (or SPRs) in 2016. The expected capacity of the SPRs is 39.1 MMbbls (million barrels) of crude oil. Most of these facilities will be completed by the end of 2016. India is also planning for the second phase of SPR capacity of 91 MMbbls by 2020. This will drive demand for crude oil.
- December 2020 West Texas Intermediate crude oil futures contracts were trading at $55.09 per barrel on July 27, 2016. The forward curve suggests higher crude oil prices in the future.
- The China Association of Automobile Manufacturers reported that vehicle sales in China rose by 14.6% to 2.1 million units in June 2016 compared to the corresponding month in 2015. That supports crude oil and refined products demand.
- Market surveys project that China’s crude oil imports will average 7.4 MMbpd over the next six months due to demand from teapot refineries. The EIA estimates that China is planning to build 500 MMbbls of strategic crude oil reserve space by 2020. This change will also add to imports.
Impact on energy stocks and ETFs
Higher crude oil prices positively impact the earnings of oil and gas exploration and production companies such as Synergy Resources (SYRG) and Whiting Petroleum (WLL). They also impact ETFs and ETNs such as the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) and the VelocityShares 3x Inverse Crude Oil ETN (DWTI).
In the next two parts of this series, we’ll look at some key bearish drivers for crude oil prices.