How Long Will Crude Oil and Natural Gas Rally on Inventory Cues?
The EIA (U.S. Energy Information Administration) released its monthly STEO (Short-Term Energy Outlook) report on June 9, 2015. The report highlighted that Brent crude oil prices could average around $61 per barrel in 2015 and $67 per barrel in 2016. Brent’s 2016 estimates are $3 per barrel lower than the EIA’s previous estimates. Government data also showed that WTI (West Texas Intermediate) crude oil could also average around $56 per barrel in 2015 and $62 per barrel in 2016.
The consensus of slowing US crude oil production, improving global crude oil demand, and risks of unplanned outages from the Middle East and North Africa supported crude oil prices. However, global crude oil inventories continued to increase for third month in a row. The global stockpile was at 2 MMbbls (million barrels) in May 2015.
US crude oil production averaged around 9.6 MMbpd (million barrels per day) in May 2015. The EIA expects the US crude oil production to slow down in 2H15. It will resume production in early 2016. The government agency forecasts that US crude oil production could average around 9.4 MMbpd in 2015 and 9.3 MMbpd in 2016.
Last week, OPEC (Organization of the Petroleum Exporting Countries) decided to maintain its quota of 30 MMbpd for the next six months. OPEC produced 31.2 MMbpd of crude oil in May 2015. The estimates of rising production will continue to put pressure on crude oil prices.
Higher crude oil prices benefit some of the US shale oil and gas companies like Whiting Petroleum (WLL), Continental Resources (CLR), and Marathon Oil (MRO). They also impact oil and gas ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Select Sector SPDR Fund ETF (XLE).
Browse this series on Market Realist: