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A worker collects a crude oil sample at an oil well operated by Venezuela’s state oil company PDVSA in Morichal, Venezuela, July 28, 2011. REUTERS/Carlos Garcia Rawlins

Oct 25 (Reuters) – Energy transition and peak demand predictions have spooked investors in oil, putting the prospect of peak production sooner than anticipated accompanied by wild price spikes.

Key climate talks are set to begin at the end of this month in Glasgow, Scotland to tackle global warming under the 2015 Paris Agreement, with fossil fuel in policy-makers’ crosshairs.

But as it stands now, mobility curbs which hollowed out both spending on upstream oil projects and oil end use may already be set to permanently rein in the growth of both supply and demand.

“On current trends, global oil supply is likely to peak even earlier than demand,” the research department of bank Morgan Stanley said in a note this week.

“The planet puts boundaries on the amount of carbon that can safely be emitted. Therefore, oil consumption needs to peak. However, this is such a well-telegraphed prospect that it has solicited its own counter-response already: low investment.”

Global oil demand and declines in supply by scenario

Still, with most oil producers and watchdogs putting the peak to the world’s thirst for oil at least several years away, demand is already veering back toward pre-pandemic levels. read more

The mismatch between demand for oil and other polluting fossil fuels roaring back to normal and output having lagged has helped contribute to an energy crunch in Europe and Asia, with crude prices soaring to multi-year highs.

…click on the above link to read the rest of the article…

White House Putting Pressure on OPEC to Increase Oil Production Amid ‘Supply Issues,’ Rising Energy Prices

October 28, 2021

An oil pump jack pumps oil in a field near Calgary, Alberta, Canada, on July 21, 2014. (Todd Korol/Reuters)

EXECUTIVE BRANCH

White House Putting Pressure on OPEC to Increase Oil Production Amid ‘Supply Issues,’ Rising Energy Prices

The White House on Tuesday promised to put pressure on members of the Organization of the Petroleum Exporting Countries (OPEC) to increase production amid declining supplies and rising energy prices.

Press secretary Jen Psaki told reports at a press briefing that the president is “mindful” of the increased prices consumers are facing when it comes to their energy bills and that he “reserves a range of options,” to combat the situation.

Psaki said the administration is focusing on raising its concern with “supply issues as it relates to oil” on the international stage.

“There’s a power of the president of the United States engaging on that front,” she said. “That issue has been raised at [national security adviser Jake Sullivan’s] level, at a range of levels throughout government, but certainly the supply … and putting additional pressure on OPEC is something that certainly our national security team will continue to do.”

The administration is “concerned” over the high gas prices and has asked the Federal Trade Commission (FTC) to investigate the matter, Psaki said.

“I will also note that as it relates to gas prices, we remain concerned about trends we have seen where even as supply has increased at times over the last several months, we’ve still seen heightened prices,” she said. “We’ve asked the FTC to look into that.”

Jerry Simmons, president of the Domestic Energy Producer Alliance (DEPA), has blamed Biden administration policies for hindering U.S. oil and gas companies from producing energy commodities, and securing American energy independence and lower prices for American families.

…click on the above link to read the rest of the article…

Oil Prices Will Remain High For Years To Come

October 26, 2021

Oil Prices Will Remain High For Years To Come

A growing number of major investment banks are turning bullish on oil in the medium to long term.
A lack of investment is leading to supply deficits as demand rebounds to pre-COVID levels.
Rebounding consumption and tight supply could push oil prices even higher.

Six years after former BP chief executive Bob Dudley said that “the industry needs to prepare for lower for longer,” a growing number of major investment banks now expect “higher for longer” oil prices.

Rebounding global oil consumption amid tight supply—contrary to some forecasts last year that indicate demand may have peaked or was close to its peak—as well as years of underinvestment in new supply following the 2015 crash, have prompted Wall Street banks to raise significantly their projections for oil prices in the short and medium term.

Oil prices have hit multi-year highs in recent days, with WTI Crude at its highest since 2014 and Brent Crude at the highest level since October 2018.

Even after the latest rally, prices still have headroom to rise further, many major investment banks believe.

Goldman Sachs, for example, sees Brent hitting $90 per barrel at the end of this year, up from $80 expected earlier. The key driver of Goldman’s higher forecast is global oil demand recovery amid still a weaker supply response from non-OPEC+ oil producers.

The investment bank also sees sustained higher oil prices in the coming years.

Fundamentals warrant higher oil prices, and the bank’s forecast for the next several years is $85 a barrel, Damien Courvalin, Head of Energy Research & Senior Commodity Strategist at Goldman Sachs, told CNBC earlier this month.

Oil demand will set record highs next year and the year after that, and we need to see a ramp-up in investment, he said.

“We’re facing potential multi-year deficits and the risk of significantly higher prices,” Courvalin told CNBC.

…click on the above link to read the rest of the article…

Forget $100, Options Traders Now Betting On Oil Prices Hitting $200

October 24, 2021

Forget $100, Options Traders Now Betting On Oil Prices Hitting $200

$100 Oil is no longer an ‘outrageous’ bet in the call-options market
Some speculative traders are now betting on $200 oil in December 2022
For those betting on $100 oil, the leader of the OPEC+ alliance, Saudi Arabia, has a message: look beyond the end of this year; an oversupply is coming next year

As oil prices hit multi-year highs, some speculative traders are betting on the options market that oil could exceed $100 a barrel by the end of this year and even reach a record $200 per barrel by the end of 2022.

Call options give traders the right—but not the obligation—to buy assets at a certain price, the so-called strike price, by a certain date.

The amounts of call options at triple-digit strikes have soared in recent weeks, suggesting that more speculative traders are attracted by potential quick profits from options trades, which are relatively low-cost ways to speculate on the direction of an asset.

Some “wild” bets such as call options at a $100 per barrel WTI Crude strike by December 2021 or $200 per barrel Brent Crude by December 2022 have been placed in recent weeks, The Wall Street Journal reports, citing data from provider QuikStrike.

For example, at the end of September, call options at Brent at $200 a barrel for December 2022 traded 1,300 times in one day, amid a worsening energy crunch in Europe and Asia ahead of the winter heating season in the northern hemisphere.

In WTI, the number of outstanding call options with $100 per barrel strike price with different expiry dates has surged five times since early February 2021 to more than 141,000 contracts as of the middle of October, according to data from CME quoted by the Journal.

Other popular call options for WTI included strikes at $95 or $180, QuikStrike data reported by the Journal showed.

…click on the above link to read the rest of the article…

Peak Oil Demand Forecasts Turn Sour As Demand Keeps Growing

October 24, 2021

Peak Oil Demand Forecasts Turn Sour As Demand Keeps Growing

Predicting oil—or, apparently, gas—prices is a notoriously uncertain business
Over the longer term, predicting oil prices becomes even more challenging
But besides crazy bets on high oil prices in the near future, there are other signs that the demise of fossil fuels has been greatly exaggerated

In the mind of many a news consumer, oil is on its way out. So is coal. So is gas, although that one might stick around for a little longer. We are, after all, moving into a new era of clean energy, and while it will take us some time to get there, it’s our only option for a future. And fossil fuels have no place in that future.

The latest oil, gas, and coal price rally, therefore, must have come as a shock to that hypothetical news consumer. It turns out, this rally said, that news does not always reflect reality. Neither do oil and gas price forecasts. Remember when there was a gas glut, as recently as last year? Everyone said it would persist, keeping prices low. But it didn’t. The glut ended quite suddenly this year.

Predicting oil—or, apparently, gas—prices is a notoriously uncertain business. This, however, is not stopping hundreds if not thousands of people from doing it on a daily basis, with varying degrees of success. Right now, most forecasters seem to expect prices to continue rising because there are simply too many factors working to support them.

Over the longer term, predicting oil prices becomes even more challenging. Right now, it is especially challenging because few forecasters appear to have anticipated the current rally, and now a flurry of revisions are being made, according to a New York Times report…

…click on the above link to read the rest of the article…

One Bank Crunches The Numbers On Oil Supply/Demand Dynamics, Reaches A Shocking Conclusion

October 20, 2021

One Bank Crunches The Numbers On Oil Supply/Demand Dynamics, Reaches A Shocking Conclusion

With oil prices surging amid a broader global energy crisis, many are hoping that this particular price spike is truly transitory as incremental supply – whether from OPEC+ or shale – kicks in and resets the market lower.

But maybe not so fast: as Morgan Stanley’s chief commodity strategist Martijn Rats writes, on current trends, global oil supply is likely to peak even earlier than demand. And as prices search for the level at which demand erosion kicks in, he is increasing his Q1 2022 Brent forecast to $95/bbl, while also lifting his long-term forecast from $60 to $70/bbl.

As hinted by the bold text above, the note from the Morgan Stanley commodity strategist (available to pro zero hedge subs in the usual place) focuses on arguably the two key drivers in the oil market: peak demand and peak supply. As Rats explains, while tThe planet puts boundaries on the amount of carbon that can safely be emitted – and therefore, oil consumption needs to peak – this is such a well-telegraphed prospect that it has solicited its own counter-response already: low investment (especially in conjunction with ESG pressures to curb fossil fuels). The question has therefore become: which will actually peak first? Supply? Or demand?

According to MS, the second scenario would materialize if demand were to decline very sharply, say along the trajectory of the IEA’s ‘Net Zero by 2050’ study.

This assumes that oil demand falls by ~29% between 2019 and 2030, driven by technological improvements, a change in end-user behaviour and other factors (recent event have shown just how much of a pipe dream this is). The sum of all oil future oil demand in this scenario amounts to ~700-900 bn barrels, roughly half the estimate of proved oil reserves in the BP Statistical Review of World Energy of 1.7 trillion barrels.

…click on the above link to read the rest of the article…

Crude oil prices will go the way of ‘whale oil’ as demand has peaked, says ARK’s Cathie Wood

October 12, 2021

Crude oil prices will go the way of ‘whale oil’ as demand has peaked, says ARK’s Cathie Wood

Rising crude oil prices are a factor of supply rather than demand, she says

An old building of a British shipping base, which was consumed by a mudslide sparked by a volcano, crumbles at Whalers Bay in Deception Island, in the western Antarctica peninsula on March 06, 2016. In 1912 the Hektor Whaling Company was issued with a license to establish a shore-based whaling station. Approximately 150 people worked at the station during the austral summer, producing over 140,000 barrels of whale oil.

AFP VIA GETTY IMAGES

Much like the whale oil trade at its peak in the mid 1800s, crude oil prices have probably topped.

That’s according to Cathie Wood, founder and CEO of Ark Investment Management, who spoke of a coming peak in crude oil prices due to the arrival of electric vehicles (EV), in a series of tweets late Thursday.

Citing U.S. Energy Information Administration data, the investment manager said global oil demand peaked at 101 million barrels per day (mbd) in 2019, dropped to 92 mbd during the coronavirus in 2020, and has since rebounded to 97 mbd in 2021. “Based on our forecast for EV sales, @ARKInvest believes that oil demand has peaked,” Wood said.

ARK has predicted that EV sales will rise roughly 20-fold from around 2.2 million in 2020 to 40 million units in 2025, and industry heavyweight Tesla TSLA, 1.54% is the biggest holding in the flagship ARK Innovation exchange-traded fund ARKK, 1.04%. She also pointed to pension funds who are demanding oil companies reduce capital spending while Wall Street banks are denying them money for fracking, as OPEC is “holding the line on supply”.

…click on the above link to read the rest of the article…

Brace For Shock At The Pump: WTI Surges Above $75 As OPEC+ Raises Output Less Than Expected

July 1, 2021

Brace For Shock At The Pump: WTI Surges Above $75 As OPEC+ Raises Output Less Than Expected

Brace for shock at the pump. WTI crude prices surged by over $2, rising more than 3% to $75.8/bbl…

… the highest since 2018…

… amid reports that ahead of the conclusion of today’s OPEC, JMMC and OPEC+ meetings, Saudi Arabia and Russia have agreed on a preliminary deal regarding raising oil output, one which will include a monthly oil output increase of less than 500k bpd to OPEC’s current holdback of 5.8 million barrels until December-2021, which is less than the market consensus of 500kbp/d. Reuters adds that OPEC+ is also likely to ease oil output cuts by 2 million bpd between August and December, which suggest that OPEC+ is weighing inflation risks in the short-term, however by year-end the market is expected to be in a deficit of over 3mmb/d, which is why most banks have projected oil to rise above $85 toward the end of the second half.

Additionally, local sources add that OPEC+ is currently debating extending the production deal to the end of 2022 (from the original April 2022), according to a delegate, which will lead to the further supply constraints and even higher prices.

While OPEC+ intentions should hardly be a surprise to the market, the fact that oil prices are only now spiking shows how far behind the curve algos and CTAs have been. Or as energy expert Art Berman puts it, “So much commentary about how OPEC doesn’t matter any more yet today so many tweets expressing frustration with OPEC for not increasing supply.”

The OPEC+ meeting is happening against a backdrop of tightening supply. Crude inventories in the U.S. are falling at the fastest rate in decades, while shale producers are remaining disciplined with their spending and won’t overwhelm OPEC, ConocoPhillips Chief Executive Officer Ryan Lance said on Wednesday…

…click on the above link to read the rest of the article…

Decade Of Chaos Could Send Oil To $130 Per Barrel

June 23, 2021

Decade Of Chaos Could Send Oil To $130 Per Barrel

From $35 per barrel to $130 per barrel—this is the range for oil prices in the next few years that we could see, according to a commodity trading group. And it will all depend on what peaks first: demand or investment in new production. “You could see spikes to even higher than $100 a barrel, even $130, and you could also see it go down to $35 a barrel for periods of time going forward,” William Reed II, chief executive of Castleton Commodities International, said at the FT Global Commodities Summit this week, as quoted by Reuters. “The question is what happens first. Peak demand or peak investment?”

This is a fascinating question that will likely remain open for quite some time; it seems as if forecasts are even more unreliable than usual in the post-pandemic world. For instance, last year, energy authorities and the industry itself predicted oil demand growth was over thanks to the pandemic that encouraged a doubling down on an energy shift away from fossil fuels. Now, these same forecasters, including the International Energy Agency and BP (0.78%), are talking about growing oil demand.

One thing that can hardly be disputed is that lower spending on exploration would inevitably lead to lower production. This is what we have seen: the pandemic forced virtually everyone in the oil industry to slash their spending plans. This is what normally happens during the trough phase of an industry cycle.

What doesn’t normally happen in a usual cycle is long-term planning for smaller output. Yet this is the response of Big Oil to the push to go green. Most supermajors are planning changes that would effectively reduce their production of oil and gas. In Shell’s (1.31%) case, it has been literally ordered by a Dutch court to shrink its production of oil and gas.

…click on the above link to read the rest of the article…

It’s Too Late To Avoid A Major Oil Supply Crisis

June 18, 2021

It’s Too Late To Avoid A Major Oil Supply Crisis

There are a number of observable trends in oil supplies and by extension prices, presently. I am going to discuss one of them in this article. A lack of capital investment in finding new supplies of oil and gas. A favorite analogy of mine comes to mind, the ship is nearing the dock. In nautical parlance that means the time for course corrections is at an end. So we shall see if that is the case for oil. The massive “ship” that is world oil demand is on an unalterable collision with supplies that will have profound implications for consumers. This key metric reveals what the future is likely to hold for our energy security as the world continues to recover from the virus to those who will listen. The level of drilling and by extension capital investment is insufficient and has been for a number of years to sustain oil production at current levels. It’s no secret that even with the lower break-even costs for new projects thanks to cost-cutting by the industry the last few years, oil extraction is a capital-intensive business. The chart below from WoodMac, an energy consultancy, shows just how severe the decline in capex has been.

WSJ

The message to oil and gas companies has been pretty clear from the market, investment funds like Blackrock seeking green “purity” in the allocation of financing of new energy sources, and government edicts mandating carbon intensity reduction across the entire swath of society, and a transformation to renewable energy, that new supplies of oil and gas are not wanted.

…click on the above link to read the rest of the article…

Saudi Arabia And Russia Warn Of Major Oil Supply Crunch

June 11, 2021

Saudi Arabia And Russia Warn Of Major Oil Supply Crunch

The debate about emissions reduction and the path forward for oil companies moved to a whole new level since the International Energy Agency (IEA) dropped last month the bombshell report suggesting no new investment in oil and gas would be needed if the world is to reach net-zero emissions by 2050.

Environmentalists and activist shareholders intensified pressure on large public oil firms to align their businesses with a net-zero scenario, while some of the international majors acknowledged they have a part to play in the energy transition.

But the leaders of the OPEC+ group, Saudi Arabia and Russia, will continue to invest in oil and gas because, they say, the world will still need those resources for decades, despite the growing push against fossil fuels and investment in new supply.

Chronic underinvestment in oil and gas supply while operational oilfields mature would lead to a supply crunch and a spike in oil prices down the road, analysts and Big Oil top executives such as TotalEnergies’ Patrick Pouyanné say.

While international oil majors were somewhat more contained in their views on the IEA report—those that commented on it anyway—Saudi Arabia and Russia didn’t beat around the bush and said outright that the suggestion of no new oil and gas investments ever is “unrealistic,” “simplistic,” and taken out of a “La La Land” script.

BP’s chief executive Bernard Looney wrote that forecasts of much lower investments in oil and gas were “in many ways consistent with our approach – to reduce our oil and gas production by 40% in the next decade.” Eni’s CEO Claudio Descalzi commented on Looney’s post that “We are now at a historic turning point, where each of us needs to play an active role.”

…click on the above link to read the rest of the article…

Peak demand? More like a supply crisis propelling oil to US$100

May 17, 2021

Peak demand? More like a supply crisis propelling oil to US$100

The world stands on the cusp of an oil supply crisis. Years of insufficient investment in offshore mega-projects combined with the end of U.S. shale hyper growth and a recent shift by global supermajors to preferentially invest in alternative energy over traditional hydrocarbons have resulted in an oil industry that lacks the ability to meaningfully grow its production in the years ahead.

Why does this matter when we read headlines every day prophesizing the end of oil due to the imminent mass adoption of alternatives such as hydrogen and electric cars?

This is our energy reality: the world is nowhere near peak oil demand. Global population growth of 1.2 billion people over the next 20 years combined with decades’ long runway for alternatives to reach critical scale mean that oil demand will grow for years to come.

Yet, the delusion of imminent peak oil demand is having a profound impact on the willingness of companies to invest today in large, extremely expensive projects that often take four to six years to come onstream and a further four years to recoup initial investment.

How can a CEO justify sanctioning a multi-billion dollar project that takes 10 years to reach payout when the demand outlook a decade from now is so uncertain? The fear of peak demand is leading to the reality of peak supply.

As a result of seven years of falling investment and given the hugely capital intensive nature of the oil business, global offshore production (about 1 in 4 barrels produced) has now entered a period where new projects cannot offset existing declines and at best production will stay flat for the next several years.

…click on the above link to read the rest of the article…

Oil Major Total Sees 10 Million Bpd Supply Gap In 2025

February 10, 2021

Oil Major Total Sees 10 Million Bpd Supply Gap In 2025

France’s supermajor Total is warning that the world could find itself with a shortfall of supply of 10 million barrels per day (bpd) between now and 2025, due to continued underinvestment in the industry, the OPEC+ pact, and cracks in the U.S. shale business model.

“There is a risk of supply crunch in the mid-term,” Helle Kristoffersen, President, Strategy and Innovation at Total, said on the company’s Q4 earnings call this week.

“We have seen in 2020 how OPEC managed to bring back market discipline. We’ve seen the cracks in the US shale model, and we’ve seen a continued underinvestments in the oil industry as a whole,” Kristoffersen said.

The market needs new oil projects, considering the fact that many producing oilfields will see natural declines in production, the executive said.

“And that’s true, even if you take very cautious view on short-term demand recovery and on future demand levels,” Kristoffersen added, noting that “a 10 million barrels per day gap in supply between now and 2025, that’s a massive shortfall of supply to cover in just a very few number of years.”

Last year, the coronavirus accelerated a structural decline in upstream oil investments as all E&P firms, oil supermajors, U.S. shale producers, and national oil companies alike, slashed capital expenditures in the wake of the price crash.

Investments in new oil supply have now slumped to a more-than-a-decade low.

OPEC+ currently has a lot of spare capacity that could come on stream when demand recovers. But sustained investments in oil and gas will be needed to meet global consumption of oil, which the world will continue to need, peak demand or not, analysts and forecasters warn.

“The world may be sleepwalking into a supply crunch, albeit beyond 2021. A recovery in oil demand back to over 100 million b/d by late 2022 increases risk of a material supply gap later this decade, triggering an upward spike in price,” says Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie.

Oil Tanker Owners Pay to Move Crude in Wake of Supply Cuts

January 20, 2021

Oil Tanker Owners Pay to Move Crude in Wake of Supply Cuts

(Bloomberg) — Saudi Arabia’s oil production cuts have hit the tanker market so hard that owners of the biggest vessels are effectively subsidizing cargo deliveries on the industry’s main trade route.

Supertankers delivering 2-million-barrel shipments of the kingdom’s oil to China are losing $736 a day for the privilege, according to data from the Baltic Exchange in London on Tuesday. While owners might, in practice, be able to mitigate such losses by ordering captains to sail the vessels slower, the reality is that some ships are losing money on Middle East-to-Asia deliveries, according to Halvor Ellefsen, a shipbroker at Fearnleys.

“Even the most economical ships out there are struggling to get positive numbers,” he said. “It’s carnage right now.”

While tanker rates weren’t particularly strong up to the end of last year, they weren’t disastrous either. What really seems to have tipped the balance is when Saudi Arabia, wary of oil demand risks posed by Covid-19, announced that it would unilaterally cut 1 million barrels a day of production to support crude prices. That removed a big chunk of seaborne shipments in a market where cargoes were already curtailed.

It also came at a time when the supply of ships was being bolstered. Huge numbers of tankers had been used to store crude at sea when an oil market glut built up last year, and that’s now tumbling. Since its peak last year, about 132 million barrels of oil are no longer being stored at sea, enough to fill 66 supertankers, Vortexa data shows.

Traders also reported lower demand over the past few days from some buyers in Asia where refineries will soon start carrying out seasonal maintenance programs and therefore need fewer crude cargoes.

…click on the above link to read the rest of the article…

Peak Oil? Drivers—and Voters—Could Delay It for Years

January 9, 2021

Peak Oil? Drivers—and Voters—Could Delay It for Years

Investors and politicians have made their views clear about oil’s uncertain future. Consumers, not so much.

Drivers traverse the 405 freeway at night in California. The fate of the oil industry... — Drivers traverse the 405 freeway at night in California. The fate of the oil industry depends as much, or more, on consumers as it does on politicians and policymakers.

PHOTO: PATRICK T. FALLON/BLOOMBERG NEWS

You might be filling up your tank a lot longer than BP thinks.

Ambitious green policies—from politicians and even the newly climate-conscious oil companies—suggest the world is moving at warp speed away from fossil fuels. But the transition might not be easy on consumers’ wallets, which is precisely why it could take a while.

The idea of “peak oil,” historically a reference to a fear that oil supply was running out, now means something entirely different. British energy giant BP suggested that oil demand might have already reached its apex in 2019 if one were to imagine a world that doubles down on policies that restrict carbon emissions.

Others are more conservative. Under its “stated policies scenario,” the International Energy Agency estimates that oil demand will peak around 2030 and plateau. That scenario takes into account announced policy measures and its own judgment of how attainable they seem. As the IEA acknowledges, though, some of the declared policies are far-reaching targets. Chris Midgley, head of analytics at S&P Global Platts, says his group projects the world is unlikely to reach peak demand until the late 2030s, noting that demand for petrochemicals in particular seems resilient.

Transportation plays a key role in the timing of that peak; it accounts for the largest share of petroleum consumption globally. For electricity to crowd out oil as a transportation fuel, governments must either provide taxpayer subsidies that make electric vehicles more affordable or place a cost on not switching over, such as even higher taxes at the pump.

…click on the above link to read the rest of the article…

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