Crude Oil Market Falls Due to Chinese Fear Factors
STEO monthly report
The EIA (U.S. Energy Information Administration) will release its monthly STEO (Short-Term Energy Outlook) report on September 9, 2015. Last month, the EIA released its monthly STEO report on August 11, 2015. The government agency reported that the crude oil surplus is expected to average over 2.05 MMbpd (million barrels per day) in 2015. In contrast, it’s estimated to fall to 0.92 MMbpd in 2016. The US agency also expects US production and global production to slow down in 2016 due to long-term lower crude oil prices. It also expects a slight rise in consumption in 2016.
EIA estimates
The EIA projects that the US crude oil output could average around 9.36 MMbpd in 2015 and 8.96 MMbpd in 2016. The EIA revised the downward projection of US crude oil in August 2015. It might continue the downward revision in September 2015.
However, the EIA’s projections are too conservative. The EIA also projected that OPEC’s (Organization of the Petroleum Exporting Countries) production could slow down in 2016. In contrast, OPEC’s crude oil production hit 32.36 MMbpd of crude oil in August 2015.
The easing of oil sanctions in Iran, record exports from Iraq, record production from the North Sea, and rising global inventory will put pressure on crude oil prices. All of these factors could be discounted in the crude oil prices. The renewed concerns are a Chinese market collapse and a worse-than-anticipated recovery rate. There’s also the speculation of a European and Japanese slowdown. The fundamentals of the US slowdown haven’t been discovered yet. The Fed is delaying the interest rate hike. Also, the Chinese are dumping US Treasuries. All of this indicates that weak demand cues and more crude oil supplies could last even longer than 2016.
The long-term oversupply concerns will push crude oil prices lower. In turn, this will impact oil producers’ margins like EOG Resources (EOG), Anadarko Petroleum (APC), and Marathon Oil (MRO). They account for 7.21% of the Energy Select Sector SPDR ETF (XLE). These companies’ crude oil production mix is greater than 41% of their production portfolio.
Oil and gas ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Select Sector SPDR Fund ETF (XLE) are also affected by falling crude oil prices.
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