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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…

Saudis Scramble To Stop Oil Price Slide

November 13, 2018

Saudis Scramble To Stop Oil Price Slide

Saudi Arabia is moving quickly to halt the slide in oil prices, telegraphing a production cut intended to erase some of the re-emerging supply surplus.

Saudi oil minister Khalid al-Falih said on Monday that the kingdom would slash oil exports by 500,000 bpd in December, a move that would go a long way to reversing the 1 million-barrel-per-day increase in output agreed to by OPEC+ in June.

It was only a few weeks ago that al-Falih was trying to reassure the market that Saudi Arabia had enough spare capacity in the event of an outage; now he is rushing to try to stop the slide in prices but paring back production.

The production cut would come just after crude oil officially entered bear market territory, falling 20 percent from its October peak.

But it is unclear at this point if the rest of the OPEC+ coalition, including Russia, will join the Saudis. The OPEC-Non-OPEC Joint Ministerial Monitoring Committee (JMMC) met over the weekend in Abu Dhabi to consider options for 2019. The group was rumored to be considering a collective production cut, although the meeting ended on Sunday with no firm commitments.

Still, in an official statement, the group seemed open to the idea. The JMMC “noted that 2019 prospects point to higher supply growth than global requirements,” which is another way of saying that they are nervous about a supply glut. Also, the committee stated that a global economic downturn could depress demand, and “could lead to widening gap between supply and demand.” These conditions “may require new strategies to balance the market.” It would seem that the OPEC+ coalition is laying the groundwork for a production cut. The official ministerial meeting in Vienna in early December will reveal much more about the group’s plans heading into 2019.

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

Venezuela’s Glaring Gasoline Crisis

November 9, 2018

Venezuela’s Glaring Gasoline Crisis

Iran has dominated the headlines over the last few weeks, but Venezuela’s oil sector continues to meltdown.

Venezuela’s oil production fell to just 1.197 million barrels per day in September, down 42,000 bpd from a month earlier. However, because things are moving so quickly, that figure is now woefully out of date. With a few weeks left in 2018, many analysts believe production could fall below 1 mb/d.

Venezuela’s oil exports to the United States declined by 19 percent in October, compared to a month earlier. The decline came as a result of maintenance from the country’s upgraders, which turn heavy oil from the Orinoco Belt into exportable forms of oil. Without the ability to process, exports plunged.

But Venezuela is replete with operational and financial problems that are also contributing to the sharp decline in output and exports. Another issue has been the damaged port of Jose, the main conduit for oil exports. A tanker collision in August disrupted shipments from the port for weeks, and it remains only partly operational.

Nobody is hurting more than the Venezuelan people. At least 2.3 million people have fled Venezuela since 2015, according to a new estimate from the United Nations. The country’s inflation rate topped 833,997 percent in October, according to a report from Venezuela’s opposition-controlled Congress. The number is so astronomical that it is virtually meaningless, just as the currency itself is completely worthless.

Fuel shortages are growing worse. State-owned PDVSA has seen its refineries run into the ground, and many are not operational or operating at very low levels. On paper, the refineries can process about 1.3 million barrels per day, but in reality, many have ceased operations due to a combination of factors, including a breakdown in parts, a lack of oil supply to work with, and no financial resources. According to Bloomberg, refinery utilization is down to around 17 percent, down from 50 percent as recently as 2016.

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

Nat Gas Prices Spike On Cold Weather

November 9, 2018

Nat Gas Prices Spike On Cold Weather

Natural gas prices are sharply up as cold weather is set to sweep much of the country, putting a strain on already low storage levels.

We are heading into the winter season with natural gas inventories at their lowest level in 15 years. Natural gas inventories stood at 3,143 billion cubic feet (Bcf) for the week ending on October 26, or about 623 Bcf lower than at this point last year and 638 Bcf below the five-year average.

(Click to enlarge)

As the chart shows, natural gas inventories ebb and flow with the seasons – drawing down in the winter as American households crank up the heat, and rising again in warmer months as demand slows.

This year has been an interesting one for gas markets. U.S. production continues to break records, with surging output in the Marcellus and Utica shales, as well as skyrocketing gas production in West Texas as Permian drillers pull out gas along with crude oil.

However, higher levels of gas exports in the form of LNG, higher power burn in gas-fired power plants for electricity, and higher demand for gas in petrochemicals and other industrial uses have all led to structural increases in demand. Add to that the seasonal factors – hot temperatures this summer, which stretched into fall, and now, a coming blast of cold weather. In many parts of the country, autumn seemed a little shorter than usual, sandwiched between a long summer and a rapidly approaching winter.

Tight inventories and a bout of cold weather led Henry Hub natural gas prices to jump at the start of November by nearly 8 percent. In fact, prices jumped $0.28/MMBtu on November 5, the largest daily increase in two years. At $3.50 per million Btu (MMBtu), natural gas spot prices are up 15 percent in the past two months, and they are also at their highest level since last January.

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

Why Trump Decided To Back Down On Iran

November 5, 2018

Why Trump Decided To Back Down On Iran

The Trump administration has finally faced up to what many knew all along: It won’t be able to take Iran’s oil exports down to zero.

The U.S. is set to grant waivers to eight countries, allowing them to continue to import some level of oil from Iran, on the condition that they ratchet down their purchases in the months ahead. The full list of the countries will be released on Monday, but they will surely include China, India, South Korea and Japan, which are four of Iran’s top buyers.

“The reported awarding of waivers by the US for up to eight countries to continue buying Iranian oil, on the basis that they reduce volumes, shows that in the short term at least the Trump administration has set aside the goal of trying to cut Iran’s oil exports to zero,” Peter Kiernan, lead analyst of energy at the Economist Intelligence, said in a statement.

Convincing countries to zero out imports from Iran was always going to be tricky. On the one hand, even if the Trump administration had a free hand, it would be technically difficult to achieve. Iran continues to discount its crude, offer cargoes in barter deals, use currencies other than the U.S. dollar, and otherwise ship oil using a variety of furtive means. Iran was always going to be able to maintain some level of exports.

More importantly, however, the oil market is simply too tight to zero out Iranian supply. Notwithstanding the latest plunge in oil prices – down more than 15 percent in the past month – the market is still tight.

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

U.S. And OPEC Flood Oil Market Ahead Of Midterms

November 2, 2018

U.S. And OPEC Flood Oil Market Ahead Of Midterms

OPEC and the U.S. are together adding enormous volumes of new supply, which together have softened the oil market.

In October, OPEC hiked oil production to the highest level since 2016, back before the oil production cuts went into effect, according to a recent Reuters survey. The higher output, led by Saudi Arabia and the UAE, come just as Iranian oil is going offline. Also, Libya saw a sharp rebound in production, although the country is not part of the OPEC+ production cuts.

The 15 countries in OPEC produced an average 33.31 million barrels per day in October, the highest since December 2016. That was also up 390,000 bpd from September. “Oil producers appear to be successfully offsetting the supply outages from Iran and Venezuela,” said Carsten Fritsch of Commerzbank.

Russia, which is not part of OPEC but part of the OPEC+ coalition, continues to produce at post-Soviet record highs.

Iran lost 100,000 bpd in October, due to buyers cutting back as U.S. sanctions near, but the losses were more modest than many analysts had expected. In fact, despite the hardline rhetoric from Washington, the U.S. is poised to grant waivers to several countries that are unable to cut their imports of Iranian oil to zero.

That was largely predictable. Top importers of Iranian oil, including India, China and Turkey, could not slash their purchases to zero without incurring a significant economic cost. The U.S. pressed these countries, but ultimately had to back down. “We want to achieve maximum pressure but we don’t want to harm friends and allies either,” U.S. national security adviser John Bolton said on Wednesday. He recognized that some “may not be able to go all the way, all the way to zero immediately.” The admission is notable since Bolton is widely known as one of the most extreme hardliners when it comes to Iran.

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

Cold Snap Could Send Natural Gas To $5

October 31, 2018

Cold Snap Could Send Natural Gas To $5

The natural gas market is looking rather tight, even as U.S. production continues to set new records.

Inventories fell sharply last winter, leaving the country a little light on stocks heading into injection season. That did not concern the market much, with record-setting production expected to replenish depleted inventories.

However, the past six months has not led to surging stockpiles, and inventories replenished at a much slower rate than expected. We are about to enter the winter heating season with inventories at their lowest level in 15 years. For the week ending on October 19, the U.S. held 3,095 billion cubic feet (bcf) of natural gas in storage, or 606 bcf lower than at this point last year, and 624 bcf below the five-year average.

(Click to enlarge)

The reason for this is multifaceted, with seasonal weather playing a role, but also structural increases in demand. “Hot summer weather, LNG liquefaction demand, exports to Mexico, and the industrial sector have all mitigated the impact from a 8.7 bcf/d YoY production growth surge this summer,” Bank of America Merrill Lynch said in a recent note. Low inventories and potential deliverability risks led the investment bank to hike its price forecast for the first quarter of 2019 to $4 per MMBtu, up from a prior estimate of just $3.40/MMBtu.

Coal shutdowns have led to a lot of fuel switching. Moreover, new gas-fired power plants have opened up and continue to do so. The U.S. also became a sizable LNG exporter in 2016, and exports will continue to climb in the years ahead with more terminals coming online. New pipeline interconnections with Mexico should also lead to more shipments from Texas to the U.S.’ southern neighbor.

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

Big Oil Won’t Spend Despite Fat Profits

October 30, 2018

Big Oil Won’t Spend Despite Fat Profits

Higher oil prices are expected to leave the oil industry flush with cash, but the “capital discipline” mantra remains. Market watchers have wondered whether top oil executives would eschew with tight-fisted spending plans once their pockets fattened up again.

“We’re laser focused on disciplined free cash flow generation and strong execution. Discipline means, we’re not chasing higher prices by ramping up activity,” ConocoPhillips’ CEO Ryan Lance told investors on an earnings call. “By staying disciplined, we generate strong free cash flow, which we then allocate in a shareholder-friendly way.” He went on to stress how committed the company was to boosting the quarterly dividend and share buyback program.

Conoco beat analysts’ estimates, earning $1.36 per share in the third quarter, eight times the earnings from the $0.16 per share a year earlier. Conoco also saw soaring production in the big three shale areas – the Permian, Eagle Ford and Bakken – with output up 48 percent to 313,000 bpd. Lance said that the company still wants to “optimize” its portfolio, which includes $600 million in asset sales.

Conoco’s experience highlights an important industry trend, which is prioritizing profits over growth and size. Lance pointed out that the last time earnings were this good was back in 2014. “Brent was over $100 per barrel and our production was almost 1.5 million barrels of equivalent oil per day. So we’re as profitable today as we were then, despite prices being 25% lower and volumes being 20% lower,” Lance told investors. “So bigger isn’t always better. That’s why we’re focused on per share growth and value, not absolute volume growth.”

Norwegian oil company Equinor (formerly Statoil) echoed that sentiment.

…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…

Why Is Canadian Crude Selling For $20?

October 24, 2018

Why Is Canadian Crude Selling For $20?

Oil prices in Canada plunged late last month, with the losses continuing throughout much of October. Canadian oil producers exposed to the low prices are now fetching around $40 to 50 per barrel less than their counterparts in the United States.

Western Canada Select (WCS), which tracks heavy oil from Canada, typically trades at a discount relative to WTI. The lower price reflects quality issues, as well as the cost of transport from Alberta to refineries in the U.S.

In early 2018, the discount started to grow significantly, the result of Canadian pipelines filled to the brim. The inability of the Canadian oil industry to build a major pipeline from Alberta to either the U.S. or the Pacific Ocean is increasingly dragging down WCS. Keystone XL, Northern Gateway, Energy East, Trans Mountain Expansion – all of these pipeline projects have run into years of delays, and in the case of Northern Gateway and Energy East, scrapped all together.

That left WCS prices languishing at discounts in excess of $30 per barrel at times this year. But the problem blew up into a deeper crisis in late September. Maxed out pipelines are still a problem, but now refineries in the U.S. Midwest are in maintenance season, curtailing demand for Canadian oil. BP’s massive Whiting refinery in Indiana, Phillips’ Wood River and Marathon’s refinery in Detroit all undertook maintenance, according to CBC. WCS plunged to the low $20s per barrel, implying a discount of about $50 per barrel to WTI. The recent decline of WTI below $70 per barrel has somewhat narrowed the differential to the mid-$40s per barrel.

The discounts mean that the oil industry in Alberta is losing around $100 million per day, according to GMP FirstEnergy and CBC.

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

This Alliance Could Mark A New Era For Oil

October 22, 2018

This Alliance Could Mark A New Era For Oil

Saudi Arabia and Russia could formalize a strategic partnership that would last indefinitely, potentially marking a new era for the oil market.

In a wide-ranging interview with TASS, Saudi oil minister Khalid al-Falih said that he hopes to setup an official OPEC+ governing body, including a Secretariat, likely to be based in Vienna. The proposal could be finished by December.

To date, OPEC+ has been a somewhat informal group, or at least a provisional one, intended to address the supply glut that emerged following the 2014-2016 market bust.

This past June, the group all but declared mission accomplished, watering down the production targets by agreeing to a vague increase in collective production by 1 million barrels per day (mb/d). Without the urgent need to balance the market, the purpose of the OPEC+ agreement following the June meeting already started to become unclear.

Al-Falih wants to put together an official governing structure that would preside over oil market coordination going forward. “[W]e want to sign a new cooperation agreement that is open-ended. That does not expire after 2020 or 2021. We will leave it open,” al-Falih told TASS. He said that the purpose of OPEC+ would not be aimed at a fixed production target, but to coordinate production levels as they see fit.

But, of course, this has always been the mission of OPEC. The objective of establishing a permanent OPEC+ body raises the question of what is supposed to happen to OPEC. Al-Falih suggests that OPEC+ could “work closely with OPEC.” It seems confusing, since all of the OPEC members are in OPEC+, while OPEC+ contains a bunch of additional countries. How will these two bodies interact and to what degree will they overlap? That much remains unclear.

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

U.S. Shale Has A Glaring Problem

October 22, 2018

U.S. Shale Has A Glaring Problem

Oil prices are down a bit, but are still close to multi-year highs. That should leave the shale industry flush with cash. However, a long list of U.S. shale companies are still struggling to turn a profit.

A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) and the Sightline Institute detail the “alarming volumes of red ink” within the shale industry.

“Even after two and a half years of rising oil prices and growing expectations for improved financial results, a review of 33 publicly traded oil and gas fracking companies shows the companies posting negative free cash flows through June,” the report’s authors write. The 33 small and medium-sized drillers posted a combined $3.9 billion in negative cash flow in the first half of 2018.

The glaring problem with the poor financial results is that 2018 was supposed to be the year that the shale industry finally turned a corner. Earlier this year, the International Energy Agency painted a rosy portrait of U.S. shale, arguing in a report that “higher prices and operational improvements are putting the US shale sector on track to achieve positive free cash flow in 2018 for the first time ever.”

The improved outlook came after years of mounting debt and negative cash flow. The IEA estimates that the U.S. shale industry generated cumulative negative free cash flow of over $200 billion between 2010 and 2014. The oil market downturn that began in 2014 was supposed to have changed profligate spending, pushing out inefficient companies and leaving the sector as a whole much leaner and healthier.

“Current trends suggest that the shale industry as a whole may finally turn a profit in 2018, although downside risks remain,” the IEA wrote in July.

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

Oil Markets Tremble As Chinese Stocks Crash

October 19, 2018

Oil Markets Tremble As Chinese Stocks Crash

China’s stock market fell sharply on Thursday, dragged down by a range of concerns that should offer a warning to the broader global economy.

The Shanghai Composite Index fell nearly 3 percent on Thursday, falling to its lowest point in nearly four years. The problems in China are dragging down markets across Asia, including in Japan and South Korea.

The Shanghai Composite is now down more than 25 percent since the start of the year, and is down more than 10 percent in the last three weeks alone. Viewed another way, the Chinese stock market has lost more than $3 trillion in the last six months.

(Click to enlarge)

Shanghai Composite Index, last 12 months

The troubling thing about the recent declines is that the factors driving the losses are multiple. The trade war with the United States, mountains of debt held by local governments within China, a broader slowdown in growth, a weakening yuan and high oil prices are all creating headwinds for the Chinese economy.

China’s central bank said that it still has plenty of tools that it could use defend against the trade war. Looser reserve requirements took effect a few days ago, a move the central bank made to inject money into the economy.

The IMF says that China’s GDP growth could slow from 6.6 percent this year to just 6.2 percent in 2019, although the risks are skewed to the downside because of the trade war. The Fund said that a worst-case scenario in which the U.S. slaps stiff tariffs on nearly all imports from China would shave off 1.6 percentage points from Chinese growth.

China won’t see any relief from the U.S. Federal Reserve. Minutes of the Fed’s last meeting in late September were released on Wednesday, and they reveal a determination on the part of the central bank to continue to tighten interest rates.

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

U.S. Shale’s Glory Days Are Numbered

October 17, 2018

U.S. Shale’s Glory Days Are Numbered

There are some early signs that the U.S. shale industry is starting to show its age, with depletion rates on the rise.

A study from Wood Mackenzie found that some wells in the Permian Wolfcamp were suffering from decline rates at or above 15 percent after five years, much higher than the 5 to 10 percent originally anticipated. “If you were expecting a well to hit the normal 6 or 8 percent after five years, and you start seeing a 12 percent decline, this becomes more of a reserves issue than an economics issue,” said R.T. Dukes, a director at industry consultant Wood Mackenzie Ltd., according to Bloomberg. As a result, “you have to grow activity year over year, or it gets harder and harder to offset declines.”

Moreover, shale wells fizzle out much faster than major offshore oil fields, which is significant because the boom in shale drilling over the past few years means that there is more depletion in absolute terms than ever before. A slowdown in drilling will mean that depletion starts to become a serious problem.

A separate study from Goldman Sachs takes a deep look at whether or not the shale industry is starting to see the effects of age. The investment bank says the average life span for “the most transformative areas of global oil supply” is between 7 and 15 years.

Examples of these rapid growth periods include the USSR in the 1960s-1970s, Mexico and the North Sea in the late 1970s-1980s, Venezuela’s heavy oil production in the 1990s, Brazil in the early 2000s, and U.S. shale and Canada’s oil sands in the 2010s. Each had their period in the limelight, but ultimately many of them plateaued and entered an extended period of decline, though some suffering steeper declines than others. Supply Soars

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

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