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While OPEC is considering cutting oil production again, the executive director of the International Energy Agency (IEA), Fatih Birol, called on Monday for ‘common sense’ because fresh cuts could have negative effects on the oil market.

“Currently markets are very well supplied but we should not forget that spare capacity in Saudi Arabia is very thin, therefore cutting the production significantly today by key oil producers may have some negative implications for the markets and further tightening the markets,” Reuters quoted Birol as saying at a news conference in Bratislava.

“My appeal to all producers and consumers across the world is to have common sense in these difficult days,” the IEA’s executive director said.

In its Oil Market Report for November published last week, the IEA said that surging production from the world’s biggest oil producers have more than offset Iranian and Venezuelan supply losses, while demand growth in some developing markets is slowing, pointing to a global oil oversupply next year.

Despite the implied surplus in oil supply next year, the IEA doesn’t see the oversupply as a threat to the markets.

“Although the oil market appears to be more relaxed than it was a few weeks ago, and there might be a sense of ‘mission accomplished’ that producers have met the challenge of replacing lost barrels, such is the volatility of events that rising stocks should be welcomed as a form of insurance, rather than a threat,” the IEA said in its report.

After the latest plunge in oil prices in recent weeks and after supply-demand analysis started to suggest that an oversupply may be building, OPEC and its de facto leader Saudi Arabia have started to hint at new production cuts, with speculation ranging from cuts of 1 million bpd to as much as 1.4 million bpd.

OPEC and allies meet in early December in Vienna, where they are set to discuss the state of the oil market and potential new oil production policies.

Is An Oil Supply Crunch Inevitable?

November 14, 2018

Is An Oil Supply Crunch Inevitable?

Global oil demand will peak by 2040, according to a new report, although oil supply shortages could emerge before then.

The International Energy Agency (IEA) published its highly-anticipated World Energy Outlook 2018 on Tuesday, one of the most important energy forecasting reports published each year. In this year’s Outlook, the IEA noted that global oil demand is set to rise by 1 million barrels per day (mb/d) each year through 2025, before slowing dramatically to 0.25 mb/d thereafter.

Electric vehicles are already making inroads in the transportation sector, and that is expected to accelerate in the years ahead. By the mid-2020s, the IEA says that oil demand peaks in the market for passenger vehicles, even as vehicle sales rise by 80 percent through 2040. The agency sees 300 million EVs on the roads by 2040, which should displace about 3.3 million barrels of oil demand.

Still, demand continues to grow and doesn’t peak until 2040, which, at this point, is a pretty conservative estimate in the universe of peak demand forecasts.

The reason for this is that the IEA believes that other sectors start to take on a growing importance in driving oil demand. Everyone thinks of cars and trucks as the main source of oil demand, but over the next two decades, petrochemicals, aviation and heavy trucking account for the lion’s share of demand growth. Here are a few key figures in the IEA’s main forecast:

• Petrochemicals see 5 mb/d of demand growth, the largest of any sector.

• Heavy trucks account for 4 mb/d of demand growth through 2040, even though vehicle and logistical efficiencies avoid nearly 5.5 mb/d of additional demand growth.

• Developing economies see more than 5 mb/d of demand growth for passenger vehicles, but that is just about entirely offset by declining demand (largely due to EVs) in advanced economies.

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

The Rapid Acceleration Towards Peak Oil Demand

November 6, 2018

The Rapid Acceleration Towards Peak Oil Demand

The drumbeat towards peak oil demand is accelerating, but since much of the acceleration is happening outside of the United States, its cadence is muted.

To be clear, the developed world passed peak oil demand a decade ago and has for years been forecast to continue reducing its demand. Increasing demand in industrializing countries, particularly China and India, each with a population tantamount to that of the OECD, slightly overpowers declines in the developed world, and as a result, global demand continues to increase. In its 2015 World Energy Outlook, the IEA forecast 1.5% y/y increase outside the OECD, -1.2% y/y in the OECD, and an overall growth of 0.5%. Global peak demand will likely occur while developing world demand is still growing. Increased decline in the first world could crest demand, but merely slowing the growth in the rest of the world is the more likely to tip the global balance to plateau then decline.

Demand for oil is dominated by transportation (cars, trucks/trains, planes and boats) and industry (plastics, fertilizers, steam/heat). Passenger vehicles comprise about 25% of global oil demand and thus are the number one target for major emissions reductions. When the IEA released its 2015 World Energy Outlook mentioned above, not a country on the planet had stated plans to ban new sales of oil-fueled cars. Only Japan and Portugal had even created incentives for electric vehicles. In 2016, three European countries outlined plans to end sales of new gasoline and diesel engines. Before the year was over, IEA revised its OECD forecast downward to -1.3% per year.

In 2017 a rash of targets to constrain fossil fuels for cars led Forbes to declare it to be “The Year Europe Got Serious about Killing the Internal Combustion Engine.”

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

IEA: Clean energy transition makes reforms ‘inescapable’ for oil states

November 2, 2018

IEA: Clean energy transition makes reforms ‘inescapable’ for oil states

A changing energy system is posing “critical questions” for many of the world’s largest oil and gas producing countries, the International Energy Agency (IEA) says.

The rise of shale gas and oil in the US, global improvements in energy efficiency, and the response to climate change are leading to “sustained pressure” on countries that rely heavily on hydrocarbon revenues, it says.

In a new report, the IEA explores what these changing dynamics mean for six major oil-producing states and the consequences of a global push to meet climate change goals.

Oil producers

The report focuses on “producer economies”: large oil and gas producers which rely on hydrocarbon exports for a large portion of their national budgets.

Many of these countries are shown (in purple) in the chart, below. The report narrows in on six of these – Iraq, Nigeria, Russia, Saudi Arabia, United Arab Emirates (UAE) and Venezuela – chosen for their range of circumstances.

Oil and gas exports as a share of total exports (x-axis) and oil and gas revenue as a share of fiscal revenue (y-axis) in selected countries in 2017. Source: IEA Outlook for Producer Economies 2018

In these six countries, between 40% and 90% of government revenues come from oil and gas income. These earnings make up a similar share of the countries’ total exports.

This somewhat precarious position has been exposed by low oil prices since 2014. This has seen many of these countries facing recessions, falling incomes, budgetary deficits and even social unrest.

The “shale revolution” and long-term uncertainty over demand for oil and gas are “intensifying pressures for change” in these countries, the report says. It adds:

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

Is The Oil Supply Glut Set To Return?

October 29, 2018

Is The Oil Supply Glut Set To Return?

Is the oil market tightening too much or is a glut on the verge of making a comeback?

There were a series of mixed messages from both OPEC and the IEA in recent days, offering a muddy outlook for the oil market. First was the TASS interview with Saudi oil minister Khalid al-Falih. His main message was that Saudi Arabia has enough spare capacity to cover for any shortfall related to Iran, although he noted that any further unexpected outages – from, say, Venezuela, Libya or Nigeria – would test the cartel’s abilities.

Libya appears to be doing its part for now. Mustafa Sanalla, the head of Libya’s National Oil Corp., said that Libya is aiming to increase production to 1.6 million barrels per day by the end of 2019, which would mark the highest level since the Arab Spring and civil war began in 2011.

Al-Falih remains confident that the market is well-supplied. But separately, he said that OPEC is in “produce as much as you can mode.” Meanwhile, a technical committee working within OPEC suggested that it would prepare options for 2019, which could include a production cut in order to prevent a supply glut from re-emerging. OPEC+ announced plans to increase production by 1 million barrels per day in June, but the deterioration of the global economy in recent weeks “may require changing course,” the committee said.

Despite his confidence in the TASS interview, al-Falih sounded a bit more concerned about too much supply when he spoke to Saudi media, admitting that he was worried about rising inventories. “We (have) entered the stage of worrying about this increase,” Al-Falih said. Indeed, the U.S. has seen a sharp increase in inventories lately. Crude stocks are up more than 28 million barrels since mid-September.

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

Petro-States Face Extinction

October 26, 2018

Petro-States Face Extinction

Petro-states urgently need to begin diversifying their economies, shifting away from oil production, or else they face financial risks in the years ahead.

That conclusion comes from the IEA’s new report, “Outlook for Producer Economies,” which warns that a changing energy system threatens the economies of oil-producing countries. The threat comes in multiple forms, both on the supply side and on the demand side.

Energy efficiency, electric vehicles and other technological changes raise questions about peak demand. Climate regulation also threatens to destroy consumption. On the supply side, U.S. shale could capture a bulk of any demand increase that might have otherwise been met by other oil producers.

These factors pose serious threats to major oil producers, and the IEA focused on six countries: Iraq, Nigeria, Russia, Saudi Arabia, the UAE and Venezuela. All of those countries are significant oil producers and are overwhelmingly dependent on oil revenues to finance their budgets.

That dependence is a risk during normal cycles. The IEA noted that Iraq saw its oil revenues plunge by 40 percent after the 2014 oil price meltdown, while Venezuela saw revenues fall by 70 percent. “Major swings in hydrocarbon revenue can be deeply destabilising if finances and economies are not resilient,” the report said.

However, the problem of petro-dependence is even worse looking forward, because electric vehicles finally offer a competing alternative to crude oil in the transportation sector, while forthcoming carbon restrictions will accelerate the shift off of fossil fuels. This means the threats in the future are structural, not just cyclical.

In the IEA’s central New Policies Scenario, the crisis facing oil producers may not be particularly acute in the 2020s, as U.S. shale is expected to plateau and the potential for medium-term supply tightness could keep revenues aloft.

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

BP CEO: $80 Oil Is Unhealthy For The World

October 21, 2018

BP CEO: $80 Oil Is Unhealthy For The World

Oil prices at $80 a barrel are too high and unhealthy for the world today, Bob Dudley, the chief executive of UK supermajor BP, said on the sidelines of an event on Friday.

“There’s a healthy price for oil and energy and I believe that balances producing countries and consuming countries,” Quartz quoted Dudley as saying on the sidelines of the conference One Young World in The Hague.

“In my mind, it’s somewhere between $50 and $65 a barrel. The world can live with this,” Dudley noted.

Emerging and developing economies like India, South Africa, or Turkey are seeing their highest-ever prices of gasoline because their currencies have rapidly depreciated against the U.S. dollar and because oil prices in dollars are high, BP’s chief executive said.

Currently, oil prices are “artificially high” due to Venezuela “defying gravity” and to the U.S. sanctions on Iran, according to Dudley, who said that once those geopolitical events subside, fundamentals will return to rule the market and prices should return back to $60-$65 a barrel.

BP won’t be joining any EU special purpose vehicle designed to keep trade with Iran flowing, Dudley stressed, noting that “I think it’s full of risk.”

The concerns of BP’s chief executive that $80 oil is unhealthy for the world are shared by major international organizations such as the International Energy Agency (IEA) and the International Monetary Fund (IMF).

Expensive energy is back and it is threatening global economic growth, the IEA said in its Oil Market Report last week.

Also last week, the IMF slightly downgraded its projection for global growth for this year and next—at 3.7 percent, growth is now expected 0.2 percentage point lower than IMF’s forecast from April this year.

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

The Oil Markets Are At A Confusing Crossroads

October 15, 2018

The Oil Markets Are At A Confusing Crossroads

The oil market is “adequately supplied for now,” but the supply losses from Venezuela and Iran leave the market suffering from “strain,” according to a new report from the International Energy Agency (IEA).

The IEA noted that global oil production increased by 1.4 million barrels per day (mb/d) on a net basis since May, which helped lead to an inventory build at an average rate of 0.5 mb/d during the second quarter and likely the third quarter as well. As a result of a sizable stockpile of oil in storage, and these higher levels of production, the oil market is not in danger of shortages at the moment.

However, that has come at the expense of spare capacity, which is already down to only 2 percent of global demand, “with further reductions likely to come,” the IEA warned. “This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy.”

Iran has already lost around 800,000 bpd in exports, and the disruptions are set to continue over the next month at least with U.S. sanctions taking effect in November. Also, the “ever-present threat of supply disruptions” from Libya, combined with the ongoing losses in Venezuela, leave the oil market vulnerable.

Taking a step back, the IEA paused to note the historic nature of today’s oil market. Both supply and demand are closing in on the 100-million-barrel-per-day mark for the first time. The agency used the opportunity to take a swipe at those who warned about peak oil supply. “Fifteen years ago, forecasts of peak supply were all the rage, with production from non-OPEC countries supposed to have started declining by now,” the IEA said.

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

IEA: Expensive Energy Is Threatening Economic Growth

October 12, 2018

IEA: Expensive Energy Is Threatening Economic Growth

Expensive energy is back and it is threatening global economic growth, the International Energy Agency (IEA) said in its Oil Market Report on Friday, joining other organizations like the International Monetary (IMF) and OPEC that also expressed this week concerns about mounting challenges to economic and oil demand growth.

Brent Crude prices have been holding above $80 a barrel, while pipeline constraints have caused WTI Crude prices to lag somewhat, the IEA said in its report, but noted that “Nonetheless, our position is that expensive energy is back, with oil, gas and coal trading at multi-year highs, and it poses a threat to economic growth.”

Emerging economies are grappling not only with higher energy prices, but they are also seeing their currencies depreciate against the U.S. dollar, which increases the threat of economic growth slowing down, the IEA said.

Earlier this week, the IMF slightly downgraded its projection for global growth for this year and next—at 3.7 percent, growth is now expected 0.2 percentage point lower than IMF’s forecast from April this year. The key reasons for the downgrade included trade disputes, geopolitical tensions, and a weaker outlook for emerging economies due to higher oil import bills, among other factors, according to the IMF.

On Thursday, OPEC revised down its oil demand growth estimates for this year and next—a third downward revision in three months—citing potential headwinds to global economic growth ranging from trade disputes to weakening finances in emerging markets and geopolitical challenges. OPEC revised down its global oil demand growth to 1.54 million bpd this year, down by 80,000 bpd from the estimate in the September report. The cartel now sees global oil demand growth next year at 1.36 million bpd, down by around 50,000 bpd from last month’s assessment, to reflect expectations for lower economic growth for Turkey, Brazil, and Argentina.

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

IEA: Renewables Set For Explosive Growth

October 8, 2018

IEA: Renewables Set For Explosive Growth

Renewable energy is growing at a blistering rate, but clean energy is also nowhere near what is needed to avoid some of the worst effects of climate change, according to a series of new monumental reports on the global energy system.

Renewable energy accounted for half of the increase in new electricity generation in 2017, a remarkable feat, according to a new report from the International Energy Agency (IEA). By 2023, renewables will account for 12.4 percent of total global energy demand (not just for electricity), a sign that the adoption of wind and solar around the world is gaining steam. In the transport sector, electric vehicles and electric buses triple over the next few years.

Solar and wind are the cheapest option in a growing number of places around the world and EV sales are skyrocketing.

Here are a few more staggering statistics. Between 2017 and 2023, renewables will cover a full 40 percent of the additional growth in energy consumption. And by 2023, renewables will account for nearly a third of total electricity generation worldwide.

Solar PV will move front and center over the next few years, the IEA argues. Solar PV is expected to grow by 600 gigawatts through 2023, having already jumped by 97 GW last year. That 600 GW is equivalent to twice the size of Japan’s entire capacity.

Within the solar sector, distributed solar “makes the difference,” the IEA says. Without the distributed solar projects, solar’s expansion would be equal that of wind. But a growing number of commercial, industrial and residential applications are putting more solar panels at the local level.

Behind this explosive growth for renewables is the dramatic cost declines that make renewables increasingly the cheapest option. “For the first time, more than half of renewable electricity capacity is expected to be commissioned through competitive auctions, which continue to slash wind and solar PV bid prices to between USD 20 per megawatt hour (MWh) and USD 50/MWh,” the IEA wrote.

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

US Demands For More Oil Could Backfire

October 8, 2018

US Demands For More Oil Could Backfire

This week the State Department accused OPEC of hiding spare capacity exceeding 1.4 million barrels daily. It urged the cartel to use it to stop the oil price rally that has continued uncomfortably close to midterm elections. The request—or demand, depending on your interpretation—is unprecedented and it might do more harm than good.

Bloomberg quoted a veteran energy analyst from Jefferies, Jason Gammel, as saying, “This is the lowest level of spare capacity in the global system relative to demand that I’ve ever seen. Spare capacity is moving to a precariously low point.” The problem is, nobody seems to be certain exactly how much OPEC’s spare capacity is.

In its latest Short-Term Energy Outlook, the EIA estimated OPEC’s spare production capacity at 1.66 million bpd. But the International Energy Agency last month estimated OPEC’s spare capacity at 2.7 million bpd and is fast declining. What we do know, however, is how much spare capacity Saudi Arabia has: 1.3 million bpd, as revealed by the Energy Minister of the Kingdom during the Russian Energy Week in Moscow.

This is bad news. Until now, various sources, including the Saudis themselves and the EIA, put the Kingdom’s spare capacity at between 1.5 and 2 million bpd. In June, President Trump said the Saudis could pump 12 million bpd. The IEA concurred. Saudi Arabia’s September production rate rose to 10.7 million bpd.

From this level of production, with 1.3 million bpd in spare capacity, we get a maximum production rate of 12 million bpd, indeed. However, Khalid al-Falih delivered a worrying message: Saudi Arabia will spend US$20 billion on maintaining and boosting its spare capacity in the coming years. The news naturally cast doubt on whether the current capacity will be sufficient to cover demand.

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

IEA: Plastics Will Replace Fuels As Key Oil Demand Driver

October 6, 2018

IEA: Plastics Will Replace Fuels As Key Oil Demand Driver

Plastics will displace fuels as the main driver for crude oil demand, the International Energy Agency said today, adding that petrochemicals will come to account for more than 33 percent of oil demand growth globally in the period to 2030. By 2050, they will drive half of the global oil demand growth, raising this demand by 7 million bpd by that year.

The report that contains the projection is titled The Future of Petrochemicals, and the IEA said it was part of a series of reports that aim to uncover “blind spots”, or facets of the global energy industry that receive less attention than they deserve.

Petrochemicals are indeed Big Oil’s big hope for the future—but the more distant future. Petrochemicals are used in thousands of products, with the biggest group among these being single-use plastic products. The bad news for oil is that green initiatives around the world are mounting, and many of them are targeting precisely this group of products. And yet, even if single-use plastic products are removed from the supply chain, enough demand will remain to drive the consumption of crude oil.

“Petrochemicals are one of the key blind spots in the global energy debate, especially given the influence they will exert on future energy trends,” IEA’s head, Fatih Birol, said. Petrochemicals are not just the plastics we see in single-use grocery bags. Petrochemical products are also essential in renewable energy installations such as solar panels and wind turbines, but also batteries, and thermal insulation, and thousands of other products and components.

The durability of petrochemicals demand is evident in the demand growth trends: the IEA says demand for plastics has almost doubled over the last 18 years, exceeding the demand growth rate of every other bulk material, including steel, aluminum, and cement. Perhaps more importantly, emerging markets have yet to catch up to developed ones in their plastics consumption. Now that’s a guarantee for steady demand in the future.

IEA Asks Majors Oil Producers To Boost Production

October 5, 2018

IEA Asks Majors Oil Producers To Boost Production

Rising oil prices are hurting consumers, Fatih Birol, the Executive Director of the International Energy Agency (IEA), says, calling on major all producers to do the best they can to further boost production and ease persistent supply concerns that pushed Brent Crude to above $86 a barrel on Wednesday.

“Some countries have been making efforts to increase production but this is far from comforting the markets right now,” Birol told the Financial Times on Thursday, adding that his “hope is that all the producers are aware of the sensitive situation and make their best efforts.”

Although higher energy prices may look like a boon for oil exporting countries today, tomorrow the economies of oil exporters will also suffer because of the lower demand growth stemming from high oil prices, Birol told FT.

In an interview with Reuters, also today, Birol said that:

“It is now high time for all the players, especially those key producers and oil exporters, to consider the situation and take the right steps to comfort the market, otherwise I don’t see anybody benefiting.”

Earlier this week, the IEA chief also took to Twitter to comment on the oil price rally in recent weeks and its implications on global economy.

“Rising oil prices are hurting consumers & economic growth prospects today – globally but particularly in the emerging economies – but in a rapidly changing energy world could also have implications for producers tomorrow,” Birol tweeted on Tuesday. Related: A New Era Of LNG Megaprojects

U.S. President Donald Trump has also used Twitter several times this year to slam OPEC for keeping oil prices too high.

Birol’s comments on oil prices and what oil producers should do come just after Saudi Energy Minister Khalid al-Falih said earlier this week that Saudi Arabia would be pumping 10.7 million bpd in October—just below the Kingdom’s highest-ever production level—and would slightly raise production volumes in November.

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

Spare Capacity: The Biggest Mystery In Oil Markets

July 11, 2018

Spare Capacity: The Biggest Mystery In Oil Markets

With around 2.5 million barrels per day (mb/d) of Iranian supply targeted by the Trump administration, how will the oil market cope with the losses? Is there enough supply capacity to make up for the shortfall?

There is a great deal of debate about the true extent of the world’s spare capacity. Or, more precisely, there are a range of guesses over how much surplus is located in Saudi Arabia, the one country that really has the ability to ramp up large volumes of supply on short notice.

Saudi Arabia claims it could produce 12.5 mb/d if it really needed to. However, that claim has not been put to the test. Saudi Arabia’s all-time highest level of production was just over 10.7 mb/d in 2016, just before it helped engineer the OPEC+ production cuts.

Adding around 2 mb/d of extra supply – as President Trump demands – is a tall order. “More recent history shows Saudi has never produced more than 10.6mn b/d on average over a single month. And even in the recent period, we have observed a steep decline in domestic Saudi oil inventories,” Bank of America Merrill Lynch wrote in a note, arguing that there is plenty of reason to question the notion that Saudi Arabia has around 2 mb/d of idled capacity. “Thus, it appears the oil market has little confidence that Iran volumes can be easily replaced.”

The International Energy Agency estimates that there is around 1.1 mb/d of total global spare capacity that can truly be ramped up in a short period of time. A looser definition of spare capacity that encompasses the ability to add supply over several months puts the figure at about 3.4 mb/d, 60 percent of which is located in Saudi Arabia. Smaller additions come from the UAE, Kuwait, Iraq and Russia.

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

Why OPEC+ Needed To Add More Oil

June 25, 2018

Why OPEC+ Needed To Add More Oil

The OPEC+ group has decided to increase output by aiming to return compliance back to 100 percent, rather than the “over compliance” the group has posted to date. Although it remains to be seen how that translates into tangible production increases, because the number most kicked around was about 600,000 bpd, which is a rough figure that the markets will be assuming.

The decision will still leave the oil market rather tight on supply, and could require further action in the not-so-distant future.

Still, there are several reasons why OPEC+ feels compelled to increase production. First, the oil market is already in a supply deficit, and in fact, it may have been experiencing a deficit for four straight quarters, according to Bank of America Merrill Lynch. In 2017, the supply gap averaged 340,000 bpd, evidence that the original OPEC+ agreement succeeded in draining inventories last year.

The inventory drawdown led to total stocks dropping below the five-year average, a development that likely occurred several months ago, although data is published on a lag.

A second reason OPEC+ needed to increase supply is because demand continues to grow at a strong pace. The IEA pegs demand growth at 1.4 million barrels per day (mb/d) this year compared to 2017; more bullish analysts like Goldman Sachs estimated demand growth at 1.7 mb/d. The forecasts may vary, but either way, demand looks robust, which would likely exacerbate the supply gap as the year wears on.

On top of that, demand rises seasonally in the summer months. According to Rystad Energy, demand could jump by 1.1 mb/d in the third quarter from the second quarter. Read that again. That is 1.1 mb/d quarter-on-quarter growth, not compared to 2017 levels. Of course, that seasonal demand will ease after the summer, but the strain on the market cannot be ignored.

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

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