Avoid Oil Futures ETFs, Buy Equities Like XLE

September 02, 2015

Still, as other data from the EIA indicate, inventories continue to pile up with supply still ahead of demand. U.S. petroleum stockpiles are 175.1 million barrels, or 15.7 percent, above the five-year average. That surplus will only widen during the upcoming low-demand shoulder season.

Worldwide Oversupply
On a global basis, the International Energy Agency sees similar trends to those in the U.S. Worldwide supply ran a whopping 3 million barrels per day ahead of demand (the most since 1998) in the second quarter, sending OECD inventories to an all-time high of 2,916 million barrels in June.

Robust production from both OPEC and non-OPEC producers contributed to the supply growth.

That said, low prices are doing their job, and the rebalancing process has begun, according to the IEA.

The agency sees demand rising a swift 1.6 million barrels per day this year, the most in five years, and 1.4 million barrels per day next year.

On the other side of the equation, non-OPEC supply growth may slow from a record 2.4 million barrels per day in 2014 to 1.1 million barrels per day this year, and then contract by 200,000 barrels per day in 2016.

While the oversupply should begin to narrow going forward, in the short term, inventories may test capacity limits, pressuring prices significantly.

"Assuming OPEC production continues at around 31.7 mmbbl/d (its recent three-month average) through 2016, 2H15 [second half of the year] sees supply exceeding demand by 1.4 mb/d, testing storage limits worldwide," said the IEA. "The surplus drains down to about 850 kb/d in 2016, with 4Q16 [fourth quarter 2016] marking the first quarter of a potential stock draw."

If the IEA is right, that means crude oil is likely to stay low or even fall further in the short term, before rebounding sometime in 2016.

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