Quote of the Day

He who trims himself to suit everyone will soon whittle himself away.

Raymond Hull

Oil is rebounding in a light short covering rally after WTI actually traded below the $30/bbl on an intraday basis on Tuesday. The market sentiment remains overwhelmingly bearish for now as there are still no clear cut signs that the global oil surplus is declining or expected to decline in the short term.

The above said the EIA Short Term Energy Outlook (STEO) released yesterday forecasts the global oil surplus will continue into the early part of 2017 but the magnitude of the surplus is projected to start to ease during the first half of 2016. However, the EIA did downgrade their WTI price forecast significantly for 2016 suggesting that even with the early signs of rebalancing the market may still remain biased to the bearish side.

The main oil highlights from the STEO follow.

• EIA estimates that global oil inventories increased by 1.9 million b/d in 2015, marking the second consecutive year of inventory builds. This oversupply has contributed to oil prices reaching the lowest monthly average level since mid-2004. Inventories are forecast to rise by an additional 0.7 million b/d in 2016, before the global oil market becomes relatively balanced in 2017. The first draw on global oil inventories in 15 consecutive quarters is expected in the third quarter of 2017.

• EIA estimates global consumption of petroleum and other liquid fuels grew by 1.4 million b/d in 2015, averaging 93.8 million b/d for the year. EIA expects global consumption of petroleum and other liquid fuels to grow by 1.4 million b/d in both 2016 and 2017. Forecast real gross domestic product (GDP) for the world weighted by oil consumption, which increased by an estimated 2.4% in 2015, rises by 2.7% in 2016 and by 3.2% in 2017.

• U.S. crude oil production is projected to decrease from an average of 9.4 million b/d in 2015 to 8.7 million b/d in 2016 and to 8.5 million b/d in 2017. The forecast reflects an extended decline in Lower 48 onshore production driven by persistently low oil prices that is partially offset by growing production in the federal Gulf of Mexico.

• EIA expects U.S. crude oil production to decline steadily from 9.2 million b/d in December 2015, reaching about 8.5 million b/d in November 2016. Production is expected to stay near 8.5 million b/d for most of 2017. This level of production would be 1.2 million b/d below the April 2015 level, which was the highest monthly production since April 1971.

• EIA estimates that petroleum and other liquid fuels production in countries outside of the Organization of the Petroleum Exporting Countries (OPEC) grew by 1.3 million b/d in 2015. The 2015 growth occurred mainly in North America. EIA expects non-OPEC production to decline by 0.6 million b/d in 2016, which would be the first decline since 2008. Most of the forecast decline in 2016 is expected to be in the United States. Non-OPEC production is forecast to decrease by an additional 0.1 million b/d in 2017.