IEA: The U.S. Is Turning the Global Oil Market On Its Head

In its October 2012 Oil Market Report, the International Energy Agency cut its projections for global oil demand to 87.9 million barrels per day for the year. OPEC also issued an October oil report, which pointed to a sluggish global economy placing uncertainty on the energy market. As a result, Brent crude has dropped while the WTI Cushing Spot has risen slightly. No one seems certain what the future holds for oil.

Rising production capacity in the United States, a world leader in oil consumption, is turning established market dynamics on their head. British Petroleum (NYSE:BP) recently received permission from the United States government to ship U.S. crude to Canada. Royal Dutch Shell (NYSE:RDSA) has also applied for an export license. Non-OPEC oil supply is expected to increase by 600,000 barrels per day in 2012, and increase to 900,000 barrels per day in 2013. As U.S. imports of oil are expected to decline while exports increase, markets will experience growing pains.

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U.S. oil giants Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) have seen over 17 percent gains in share value in the past 52 weeks. The companies are walking the line between natural gas and oil demand, adjusting their strategies for production and shipping as the energy economy shifts. Unrest in the Middle East could also be playing in their favor.

U.S. crude exports haven’t curbed fears emerging from the Middle East. Ongoing fighting in Syria has analysts worried about ports in Turkey. If oil flow from the region is disrupted — more than 400,000 barrels per day out of Iraq moves through the port of Ceyhan alone — prices could become volatile.

When BP negotiated for oil rights in Azerbaijan, it made promises for economic growth based on output targets. BP promised to extract 35.6 million tons of oil from the fields it operates in the area, but is on track to miss its target. President Ilham Aliyev broadcast a televised attack on the company, claiming that promised revenues fell short $8.1 billion.

The dynamics of the oil market are drifting in uncertain economic winds. Right now, it’s unclear where the market or the economy will head, and investors and analysts are looking everywhere for answers.

“Right now, we’re just getting battered around by headlines,” said Tradition Energy broker Gene McGillian. “We’ve got support from signs that the U.S. economy is recovering, but the market is looking for signs whether a European stimulus will take hold.”

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