The IEA (International Energy Agency) released its monthly Oil Market Report on May 16, 2017. It estimates that global oil supply was at 96.35 MMbpd (million barrels per day) in 1Q17—310,000 barrels per day less than the same period in 2016. Production fell due to the production cut deal.
The IEA also estimates that global crude oil demand was at 96.6 MMbpd, which is 1.1 MMbpd higher than the same period in 2016. The IEA expects refinery crude oil demand to grow by 1.15 MMbpd year-over-year in 2Q17.
High compliance among OPEC regarding the production cut deal in 2Q17 and an extension of the deal beyond 2017 could help the oil market rebalance, according to the IEA. Goldman Sachs and Citigroup think that the global crude oil market is rebalancing due to the production cut deal.
Market focuses on US crude oil inventories
The EIA (U.S. Energy Information Administration) will release its weekly crude oil inventory report on May 17, 2017, at 10:30 AM EST. We’ll look at the API’s estimates for US crude oil and gasoline inventories in Part 3 of this series.
Iran’s Crude Oil Production Could Be the Wild Card
Iran’s crude oil production
The EIA (U.S. Energy Information Administration) estimates that Iran’s crude oil production was flat at 3.81 MMbpd (million barrels per day) in April 2017—compared to March 2017. Production rose 8.8% YoY (year-over-year). Iran’s crude oil production is at the highest level in seven years. Iran was able to increase its production after the US lifted sanctions on the country in January 2016. A rise in production from Iran pressured oil prices in 2016 and early 2017.
Iran and major oil producers
On May 15, 2017, Saudi Arabia and Russia’s energy ministers said that Iran would extend the production cut deal for nine more months. Some analysts think that Iran could favor the production cut deal after it hits the target of 4 MMbpd of crude oil production in 2017. Any capping of production from Iran could support the oil market.
Traders Focus on the API and EIA’s Crude Oil Inventories
API’s crude oil inventories
On May 16, 2017, the API (American Petroleum Institute) released its weekly crude oil inventory report. It reported that US crude oil inventories rose by 0.8 MMbbls (million barrels) on May 5–12, 2017. The surprise rise in crude oil inventories pressured US crude oil (ERY) (SCO) (ERX) prices in post-settlement trade on May 16, 2017. However, prices are trading near a three-week high.
Higher crude oil prices have a positive impact on oil and gas producers’ earnings like Hess (HES), Denbury Resources (DNR), Stone Energy (SGY), and Matador Resources (MTDR).
API’s gasoline inventories
The API estimated that US gasoline inventories fell by 1.88 MMbbls on May 5–12, 2017. However, US distillate inventories rose by 1.8 MMbbls for the same period. Moves in refined product inventories impact gasoline and crude oil (FXN) (IXC) (RYE) (IYE) prices.
EIA’s crude oil inventories
The API’s report will be followed by the EIA’s (U.S. Energy Information Administration) weekly crude oil inventory report on May 17, 2017. The data will be for the week ending May 12, 2017. For the week ending May 5, 2017, the EIA reported that US crude oil inventories fell by 5.2 MMbbls to 522.5 MMbbls. Read US Crude Oil Inventories Post Biggest Draw since December for more details on US crude oil and gasoline inventories.
Impact of US crude oil inventories
A market survey estimates that US crude oil inventories would have fallen by 2.3 MMbbls on May 5–12, 2017. If the EIA reports a surprise build like the API, it could pressure oil prices. It could overshadow OPEC’s output cut deal in the short term.
Analyzing China’s Crude Oil Imports and Demand
China’s crude oil imports
Bloomberg estimates that China’s crude oil imports fell by 810,000 bpd (barrels per day) to 8.4 MMbpd (million barrels per day) in April 2017—compared to the previous month. China’s crude oil imports fell 8.8% month-over-month, but rose 5.5% year-over-year. Imports fell due to the fall in demand from its teapot refineries. The YoY rise in crude oil imports from China could support crude oil (RYE) (XES) (IEZ) prices. China’s crude oil imports averaged 7.6 MMbpd in 2016—13.2% higher than 2015.
China’s crude oil imports rose to 9.21 MMbpd in March 2017. Imports were at the highest level ever.
China’s crude oil imports and demand
China’s crude imports will rise 5.3% to 8 MMbpd in 2017, according to China National Petroleum. It also added that China’s crude oil consumption will rise 3.4% to 12 MMbpd in 2017.
China’s crude oil production fell 3.7% month-over-month to 3.8 MMbpd in April 2017. Slowing Chinese crude oil production due to aging could also increase China’s crude oil imports.
China’s fuel exports fell by 25.1% to 930,000 bpd in April 2017. Fuel exports hit a record high at 1.06 MMbpd in 1Q17. High fuel exports will put pressure on refined product margins.
Impact on crude oil, energy stocks, and ETFs
High crude oil imports from China could support crude oil (SCO) (BNO) prices. High crude oil prices could have a positive impact on producers’ margins like Bill Barrett (BBG), Chevron (CVX), Hess (HES), and Bonanza Creek Energy (BCEI). However, China is exporting refined products. Glut in the refined products market could pressure crude oil prices. The slowing Chinese economy might pressure crude oil prices.
Libya’s crude oil production
However, crude oil prices are near a five-month low. National Oil Corporation of Libya said that the country’s crude oil production hit ~814,000 bpd (barrels per day) in early May 2017. Libya’s crude oil production is at the highest level since October 2014, according to Bloomberg estimates. The restart of production at the Sharara and El Feel fields led to the rise in Libya’s crude oil production. The rise in Libya’s crude oil production could pressure crude oil (SCO) (ERY) (USO) prices. Moves in crude oil prices impact oil producers such as Hess (HES), Sanchez Energy (SN), and Goodrich Petroleum (GDP).
EIA’s monthly drilling report
The EIA (U.S. Energy Information Administration) released its monthly Drilling Productivity report on May 15, 2017. It estimates that US crude oil production will rise in the seven shale regions by 122,000 bpd to 5,401,000 bpd in June 2017—compared to the previous month. Production is expected to rise mainly in the Permian and Eagle Ford Shale regions during this period. The expectation of a rise in production could pressure oil prices.
How Will the API’s Crude Oil Inventories Impact Oil Prices?
Higher crude oil prices have a positive impact on oil and gas producers’ earnings such as Marathon Oil (MRO), Warren Resources (WRES), Chevron (CVX), and QEP Resources (QEP).
EIA’s crude oil inventories
The API’s report will be followed by the EIA’s (U.S. Energy Information Administration) weekly crude oil inventory report for the week ending May 12, 2017. The report will be released on May 17, 2017, at 10:30 AM EST.
For the week ending May 5, 2017, the EIA reported that US crude oil inventories fell by 5.2 MMbbls to 522.5 MMbbls. For more information, read US Crude Oil Inventories Post Biggest Draw since December.
Impact of US crude oil inventories
US crude oil inventories hit 535.5 MMbbls for the week ending March 31, 2017—the highest level ever. Inventories are 2.4% below their peak level. US crude oil prices fell ~11% in the past month. Near-record crude oil inventories could pressure crude oil prices. They might also be responsible for the delay in rebalancing the crude oil market despite the major oil producers’ production cut deal.
Can OPEC and Russia Rescue the Oil Market?
OPEC’s crude oil production
The EIA (U.S. Energy Information Administration) estimates that OPEC’s (Organization of the Petroleum Exporting Countries) crude oil production rose by 90,000 bpd (barrels per day) to 31.71 MMbpd (million barrels per day) in April 2017—compared to March 2017. Production rose for the first time in the last five months. Production fell from December 2016 to March 2017 due to major producers’ production cut deal. Production fell by 1.5 MMbpd, or 4.7%, from the peak in November 2016.
The fall in OPEC’s production is bullish for crude oil (FENY) (FXN) (SCO) prices. Higher crude oil prices have a positive impact on oil and gas producers’ earnings like ExxonMobil (XOM), Denbury Resources (DNR), Northern Oil & Gas (NOG), and Triangle Petroleum (TPLM).
Russia’s oil production
The EIA estimates that Russia’s oil production fell by 51,000 bpd (barrels per day) to 11.22 MMbpd in April 2017. Production fell to meet the targeted production cut in April 2017. It’s the lowest production level since August 2016. Read Russia’s Crude Oil Production Fell in April: What’s Next? to learn more.
Saudi Arabia and Russia’s production plans
On May 15, 2017, Saudi Arabia and Russia favored extending major producers’ production cut deal for nine more months. OPEC and non-OPEC producers plan to cut production by 1.8 MMbpd from July 2017 to March 2018. OPEC’s meeting is scheduled on May 25, 2017. The meeting could result in an official extension of major producers’ production cut deal. However, a rise in supplies from the US, Brazil, Libya, and Nigeria could delay rebalancing in the oil market.
OECD’s Crude Oil Inventories Are near a 5-Month Low
OECD’s crude oil inventories
The EIA (U.S. Energy Information Administration) estimates that OECD’s (Organization for Economic Cooperation and Development) crude oil inventories fell by 5.74 MMbbls (million barrels) to 3,027 MMbbls in April 2017—compared to March 2017. OECD’s oil inventories fell 0.2% month-over-month, but rose 0.6% year-over-year. OECD crude oil inventories are near a five-month low. The fall in oil inventories is bullish for crude oil (VDE) (IEZ) (XES) (USO) prices.
OPEC’s estimate
OPEC’s (Organization of the Petroleum Exporting Countries) Monthly Oil Market report stated that OECD countries’ oil inventories fell by 36 MMbbls to 3,013 MMbbls in March 2017—compared to the previous month. OECD’s inventories were 1 MMbbls lower than the same period in 2016.
Oil inventories in 2017 and 2018
OECD’s oil inventories averaged 2,860 MMbbls in 2015 and 3,024 MMbbls in 2016. The EIA expects OECD’s oil inventories to average 2,992 MMbbls and 3,041 MMbbls in 2017 and 2018, respectively.
Impact of OECD’s crude oil inventories
The fall in OECD’s oil inventories in 2017 could support crude oil prices in 2017. Higher crude oil prices have a positive impact on crude oil and natural gas producers’ revenues such as Carrizo Oil & Gas (CRZO), Marathon Oil (MRO), Cobalt International Energy (CIE), and Continental Resources (CLR).
Iraq’s Crude Oil Production Is near a 9-Month Low
Iraq’s crude oil production
The EIA (U.S. Energy Information Administration) estimates that Iraq’s crude oil production fell by 5,000 bpd (barrels per day) to 4.4 MMbpd (million barrels per day) in April 2017—compared to March 2017. Production fell 0.1% month-over-month and 1.1% year-over-year. Production fell due to major producers’ production cut deal. Production is at the lowest level since July 2017.
The fall in production from Iraq could support crude oil (ERY) (ERX) (PXI) (UCO) prices. Higher oil prices benefit Middle East oil producers like Iraq National Oil Company and Oman Oil Company. They also impact US oil and gas exploration and production companies like ConocoPhillips (COP), Contango Oil & Gas (MCF), Stone Energy (SGY), and Denbury Resources (DNR).
Iraq’s crude oil exports
Iraq exported 3.252 MMbpd and 3.259 MMbpd of crude oil in April 2017 and March 2017. Iraq’s Ministry of Oil reported that revenue from crude oil accounts for 95% of Iraq’s budget.
Iraq’s crude oil production strategy
Iraq’s crude oil production hit an all-time high of 4.66 MMbpd in December 2016. The International Energy Agency estimates that Iraq’s crude oil production will rise to 5.4 MMbpd by 2022.
Iraq is OPEC’s (Organization of the Petroleum Exporting Countries) second-largest crude oil producer after Saudi Arabia. Iraq will reduce production in the coming months as part of major producers’ production cut deal. Expectations of a fall in crude oil production from Iraq will have a positive impact on crude oil (IXC) (IYE) (XLE) prices.
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