Will Crude Oil Supply and Demand Balance in 2017?



Crude oil prices 

November West Texas Intermediate crude oil futures contracts rose 1% and were trading at $45.7 per barrel in electronic trading at 6:10 AM EST on September 22, 2016. Prices extended the rally from the previous day. For more on crude oil prices, read Part 1 of this series.

Prices rose in August and found support in September 2016 due to speculation about major oil producers’ meeting. The meeting could result in an output cap. Read Crude Oil Prices Rose after Skepticism about Output Freeze Talks to learn more.

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Crude oil supply and demand balance 

The possibility of increasing crude 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.

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 2017.

The International Energy Agency reported 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.

Changes in demand and supply estimates can cause volatility in crude oil prices. Read US Crude Oil Prices Rebound from Multi-Week Lows for more on US crude oil prices’ highs and lows.

Volatility in crude oil prices impacts oil producers’ profitability such as SM Energy (SM), Comstock Resources (CRK), 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 Direxion Daily Energy Bear 3x ETF (ERY), 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.


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