Crude oil prices
November West Texas Intermediate crude oil futures contracts fell 0.5% and were trading at $46.8 per barrel in electronic trading at 5:30 AM EST on September 29, 2016. For more on crude oil prices and oil producers’ meeting, read Part 1 of this series.
Crude oil supply and demand balance
On September 27, 2016, the IEA’s executive director said that crude oil supply will outstrip demand until 4Q17. He also expects that crude oil consumption will slowdown in China and India in 2017.
On September 13, 2016, in its monthly Oil Market Report, the IEA estimated that slowing crude oil demand, high global crude oil and product inventories, and rising crude oil production will extend the crude oil oversupply until 1H17.
The Organization of the Petroleum Exporting Countries reported that countries like the US, Russia, and Norway could produce 190,000 bpd (barrels per day) more in 2016—compared to previous estimates.
The U.S. Energy Information Administration estimates that the global crude oil supply could outstrip demand by 1.1 MMbpd (million barrels per day) in 2H16—compared to 2.2 MMbpd in 1H16. It expects that the crude oil supply and demand will reach a balance in 2H17.
The possibility of increasing crude oil supplies from Libya and Nigeria will add to the oversupplied crude oil market. Read How Rising OPEC Crude Oil Production Is Affecting Oil Market, Will Russia’s Crude Oil Production Reach Historic Levels?, and Will Iran’s Crude Oil Production Pressure Crude Oil Prices? for more on oversupply.
Changes in demand and supply estimates can cause volatility in crude oil prices. The ups and downs in crude oil prices impact oil producers’ profitability such as SM Energy (SM) and Goodrich Petroleum (GDP).
It also impacts funds such as the VelocityShares 3x Inverse Crude Oil ET N (DWTI), the PowerShares DWA Energy Momentum ETF (PXI), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the United States Oil ETF (USO), and the ProShares Ultra Bloomberg Crude Oil ETF (UCO).
In the next part of this series, we’ll look at US crude oil inventories.