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India’s Strategic Petroleum Reserves Could Drive Crude Oil Demand

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Jul. 22 2016, Updated 12:09 p.m. ET

Bullish catalyst for crude oil demand 

In this part of the series, we’ll look at India’s importance in regards to crude oil demand along with other bullish factors over the long term.

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Bullish drivers for crude oil demand

  • The EIA (U.S. Energy Information Administration) reported that India plans to build three strategic petroleum reserves (or SPR) in 2016. The expected capacity of the SPRs is 39.1 million barrels (or MMbbls) of crude oil. Most of these facilities will be completed by the end of 2016. This will drive demand for crude oil. Secondly, India is planning for the second phase of SPR capacity of 91 MMbbls by 2020. This could also add to the demand for crude oil.
  • India’s Petroleum, Planning, and Analysis Cell reported that India’s crude oil consumption was at 48.5 million tons between April 2016 and June 2016, which is 7.8% more than in the corresponding period in 2015. The improving economic growth supported crude oil demand in India. To learn more, read India’s Crude Oil Demand Will Likely Drive the Crude Oil Market.
  • 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, which 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 (million barrels) of strategic crude oil reserve space by 2020. This change will also add to imports.
  • West Texas Intermediate crude oil futures contracts for December 2020 were trading at $55.54 per barrel on Wednesday, July 20, 2016. The forward curve suggests higher crude oil prices in the future.

Impact on energy stocks and ETFs  

The ups and downs in crude oil prices affect oil and gas exploration and production companies like Synergy Resources (SYRG), Ultra Petroleum (UPL), and Whiting Petroleum (WLL). They also impact ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) and the United States Brent Oil ETF (BNO).

In the next two parts of this series, we’ll look at some key bearish drivers for crude oil prices.

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