EIA Slashes U.S. Oil Demand Growth Forecast for 2016

Revised forecasts puts U.S. oil demand growth at 160,000 bpd in 2016

The U.S. Energy Department’s statistical wing, Energy Information Administration (EIA), has revised downwards its forecast for U.S. oil demand growth in 2016, while increasing the oil demand growth forecast for 2017, according to its monthly outlook issued on Tuesday, July 12th, 2016. EIA’s revised forecasts predict U.S. oil demand to grow at 160,000 barrels per day (bpd) in 2016, compared with previous expectations of 220,000 bpd. On the other hand, oil demand is forecasted to grow at a higher rate of 120,000 bpd in 2017 compared with the earlier prediction of just 60,000 bpd. EIA has also stated that U.S. petroleum and liquid fuel consumption would reach an average of 19.68 million bpd in 2017, on par with earlier estimates.

Global oil demand & non-OPEC supply Y-o-Y changes, 2017 Source: OPEC
Global oil demand & non-OPEC supply Y-o-Y changes, 2017
Source: OPEC

The EIA’s forecast resonates with the latest monthly report of the Organization of Petroleum Exporting Countries (OPEC), released on July 12th, 2016, which said that demand for the producers group’s oil in 2017 would be higher than its current production. With global oil demand growth forecast to rise in 2017 and non-OPEC supply expected to fall, OPEC hopes that these market conditions would help eliminate excess oil stockpiles in 2017. OPEC also said that crude demand from its own 14 members was expected to rise to an average of 33.0 million barrels per day (mb/d) in 2017, a gain of 1.1 mb/d over the current year, as compared to an expected increase of 1.9 mb/d in 2016.

Gasoline prices to decline

Source: EIA
Source: EIA

While reducing the U.S. oil demand forecasts, EIA also expects gasoline prices to gradually decline from their June 2016 levels through the end of 2016. This is mainly attributed to lower crude oil prices, high gasoline production, and rising gasoline inventories. According to the EIA’s official weekly crude oil inventory data on Wednesday, July 13th, 2016, gasoline production increased during the week ended July 1st, 2016, averaging over 10.0 million barrels per day. The national average retail regular gasoline price decreased to $2.291per gallon on July 4th, 2016, $0.038 below the previous week’s price and $0.502 under a year ago. The national average retail diesel fuel price decreased to $2.423 per gallon, $0.003 per gallon less than the previous week and $0.409 lower than a year ago.

Source: EIA
Source: EIA

EIA also cut its 2016 world demand forecast by 10,000 bpd to a 1.44 million bpd Y-o-Y increase, and raised its 2017 world demand growth forecast by 20,000 bpd to a 1.49 million bpd rise. India and China are expected to account for much of the growth in global oil consumption in 2016 and 2017.

Other data showed that U.S. crude oil production is expected to decline to 8.61 million bpd in 2016, compared with 8.60 million bpd forecasted earlier. In 2017, crude production will further decline to 8.20 million bpd versus 8.19 million bpd forecasted previously.

Crude oil futures tumble

In a related development, crude oil futures tumbled on Wednesday, July 13th, 2016, as investors locked in gains after oil prices surged nearly 5% on July 12th, 2016, partly on forecasts from the U.S. government and OPEC that crude demand would increase in 2017. As a result, Brent futures LCOc1 initially fell to a low of $46.59 per barrel, inching up 0.80% to settle at $46.63 at the close of trading. U.S. crude CLc1 fell to a low of $45.02 per barrel, inching up 0.94% to settle at $45.17 at the close of trading hours.

E4E5 Oil prices came under pressure after EIA data showed a surprise buildup of U.S. crude stockpiles, price gains in other commodities including gold, and a stronger U.S. dollar that gained against a basket of currencies. Oil prices could continue to face pressure in the short term owing to the rising Canadian supplies, a higher U.S. oil rig count, and cuts in hedge fund bets on crude, according to Reuters.

According to the EIA’s official weekly crude oil inventory data on Wednesday, July 13th, 2016, U.S. commercial crude oil inventories are at a historically high level for this time of year at 524.4 million barrels. Total motor gasoline inventories declined by 0.1 million barrels last week, but are well above the upper limit of the average range. Finished gasoline inventories decreased, while blending components inventories increased last week. Distillate fuel inventories decreased by 1.6 million barrels last week, but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.7 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories increased by 3.4 million barrels last week.

Industry experts are concerned that if global oil production rises too quickly, the oil market would not be able to rebalance itself since it would take a long time for drilling activity to catch up. Data shows that the number of oil rigs increased by 10 to 351 in the week ended July 8th, 2016, but the total number of U.S. rigs is still 45% lower than a year ago.

Oil markets are also wary about the negative impact of an international court ruling that China has no historic title over the South China Sea waters, and had breached the sovereign rights of the Philippines by exploring for oil and gas near the Reed Bank.

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