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When crude oil demand will peak is anyone’s guess. Forecasts vary widely. Wood Mackenzie says that peak demand is “very real,” and sees a decline of 4 million bpd between 2020 and 2035. Other majors including BP and Total SA see peak demand as coming between 2025 and 2040, as a result of clean energy government initiatives, slower economic growth, and wider use of electric vehicles.

Not everyone is that concerned with peak oil demand, however. Recently, Norway’s Energy Minister said the biggest problem for Europe’s largest oil and gas producer is satisfying near-term demand, which is growing faster than Norwegian continental shelf operators are making discoveries.

It might sound a bit weird that Europe’s greenest country is still so big on oil and gas, but in reality, there’s nothing weird: Oil and gas exports account for a substantial portion of Norway’s export revenues, with their value for 2016 standing at $43.84 billion (350 billion crowns), accounting for 47 percent of the country’s total export value.

Norway’s biggest customer is the European Union. Together with Saudi Aramco, Norway’s state major Statoil accounted for a fifth of the EU oil market last year. Yet demand in the EU is supposed to be falling, with rigorous policies designed to encourage acceleration of the shift to renewable energy.

Indeed, according to European Union statistics, demand is on a stable downward curve thanks to greater energy use efficiency, “structural changes in the economy”, and lower demand for fuels. Still, Eurostat notes, crude oil and its derivatives account for the biggest share of energy consumption in the 28-strong union.

That’s good news for Norway, and there’s more good news from Wood Mackenzie. The energy consultancy has forecast that although in places like Europe, Japan, the United States, and even China, crude oil consumption will plateau by 2035, the demand for petrochemicals will jump considerably.

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

OPEC Boosts Oil Demand Estimates, Admits Oil Prices Can’t Rise Above $55

October 11, 2017

OPEC Boosts Oil Demand Estimates, Admits Oil Prices Can’t Rise Above $55

In its latest OPEC Monthly Oil Market Report (October) the oil cartel has increased its oil demand estimates for 2017, 2018 on strengthening world economy, and weaker outlook for supplies from its rivals.

Specifically, OPEC forecasts that based on the current global oil supply/demand balance, demand for OPEC crude in 2017 is estimated at 32.8 mb/d, around 0.6 mb/d higher than in 2016. Similarly, OPEC crude in 2018 is projected at 33.1 mb/d, 350k b/d higher than September production, and ~200k b/d higher than the group estimated last month. Global oil demand seen rising +1.38m b/d, or 1.4% in 2018 to 98.19m b/d

Meanwhile, OPEC claims that oil inventories in developed nations continued to decline, -24.7m bbl to 2.996b bbl in August, curbing surplus relative to a 5-year average to 171m bbl.

Here are the key highlights from the report:

Crude Oil Price Movements

The OPEC Reference Basket rose to $53.44/b in September, its highest value since July 2015. Crude futures prices also saw gains, with ICE Brent averaging above the $55/b, supported by increasing evidence that the oil market is heading toward rebalancing. Geopolitical tensions and lower distillates stocks also pushed prices higher. ICE Brent averaged $55.51/b in September, a gain of $3.64, while NYMEX WTI increased $1.82 to average $49.88/b. Hedge funds raised net long position in ICE Brent and NYMEX WTI futures and options by almost 200,000 contracts. At the end of the month, the Brent crude contract curve had flipped into backwardation through December 2021. The sweet/sour spread widened significantly in Asia and Europe.

World Economy

Growth in the world economy continues to improve, with the forecast for 2017 revised up to 3.6% from 3.5% in last month’s report. Similarly, the 2018 forecast has been adjusted higher to 3.5% from 3.4%. The improving momentum is visible in all economies, particularly the OECD, which is seen growing by 2.2% in 2017 and by an upwardly revised 2.1% in 2018.

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

Bill Blain: “Oil Could Change Everything”

September 26, 2017

Bill Blain: “Oil Could Change Everything”

Blain’s Morning Porridge: A Short Distraction In The Oil Market

Did I detect a distinct change in the market wind yesterday? There is a new freshening blow out the East. It feels like the world is changing: a slide in tech stocks and a wobble in sentiment, stronger oil prices and all the noise about Germany and where that leaves Europe, and Macron’s France’s dreams of Empire closer union.

Of course we still have all the usual worries, like North Korea saying Trumps twittering gives them carte blanche to shoot down American planes – which, to be honest, is unlikely because nobody is really that stupid… are they? And as Trump plays to red-neck sports fans, we also saw the death knell spike delivered on Obamacare reform. Then there is Spain vs Catalunya – perhaps a topic we should pay more attention to. And I think there was probably more news about Brexit, but to be honest I wasn’t paying attention and could not be ar**d to read about it. Bored of it. Get on with it.

As always, there is so much to think about.

Oil is one I’m watching closely because it’s the global commodity and market price that could change everything.

We’ve been arguing across the desk these past few years about whether $55-45 is the new normal range for oil, or do prices revert back towards $100? Some argue a stronger global economy means higher prices, others that the demand and supply dynamics have so fundamentally changed that a lower long term range is nailed-on for decades.

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

IEA Forecasts Fastest Oil Demand Growth In Two Years

September 13, 2017

IEA Forecasts Fastest Oil Demand Growth In Two Years

The International Energy Agency, which advises most major economies on energy policy, forecast that global oil demand will climb this year by the most in two years amid stronger-than-expected consumption in Europe and the U.S. although it was unclear just how this will offset recently fading demand by the two biggest marginal consumers, China and India. The IEA reported that global oil demand grew very strongly in Y/Y in Q2 2017, by 2.3mmb/d, or 2.4%, and increased its estimate for demand growth in 2017 by 100,000 barrels a day to 1.6 million a day, or 1.7%. The IEA has now raised its 2017 oil-demand growth forecast for three months in a row.

The agency observed that the re-balancing of oversupplied world markets continues with OPEC supplies falling for the first time in five months as reported yesterday, and inventories of refined fuels in developed nations subsiding toward average levels. In August, global oil supply fell by 720 kb/d due to unplanned outages and scheduled maintenance, mainly in non-OPEC countries. OECD commercial stocks were unchanged in July at 3 016 mb, when they normally increase.

“Demand growth continues to be stronger than expected, particularly in Europe and the U.S.,” the Paris-based agency said in its monthly report.

The IEA also said that the impact of Hurricane Harvey on global oil markets is “likely to be relatively short-lived,” according to Bloomberg. Although the oil market “coped relatively well” with the disruption caused by this year’s storms, the damage to U.S. facilities will still be felt, according to the report. The country’s production was curbed by about 200,000 barrels a day in August and 300,000 a day in September.

Meanwhile local stockpiles were at “comfortable” levels before the storm hit, while releases from government reserves and plentiful imports from Europe allayed any shortage.

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

Hurricane Irma Could Destroy Oil Demand

September 6, 2017

Hurricane Irma Could Destroy Oil Demand

About half of the shuttered refining capacity along the Gulf Coast could be back up and running by Thursday, assuaging concerns about the possibility of acute gasoline shortages in much of the U.S.

The disruptions of more than 4 million barrels per day of refining capacity have been cut in half, with major refineries restarting operations in Corpus Christi and Houston. ExxonMobil is ramping up operations at its Baytown facility, the second largest in the country. Valero Energy brought two refineries in Corpus Christi and Texas City back online, with another large one in Port Arthur scheduled to resume operations soon.

The massive Motiva refinery – the largest in the country with 600,000 bpd of capacity – is still offline, but is getting closer to resuming operations. The large volume of restarts led to a spike in crude oil prices on Tuesday, with WTI up more than 3 percent. Gasoline futures fell back as the Colonial Pipeline restarted shipments.

Goldman Sachs predicts that as of Thursday, half of the shuttered refining capacity will have resumed.

But what about the rest? An estimated 1.4 mb/d could remain offline through mid-September at least, the investment bank predicts. Goldman says the lingering effects will be “modestly bearish,” projecting a 40-million-barrel increase in crude oil inventories. But the quick comeback of some larger refineries led Goldman to lower its projected demand impact from -750,000 bpd in the first month after the storm to just -600,000 bpd. Related: Oil Markets Rebound After Hurricane Harvey

However, the effects could actually become slightly bullish over time as the recovery efforts pick up, and intriguingly, there is “potential for some sustained US onshore production curtailments.” Eagle Ford shale drillers were forced to shut in some shale output as both the takeaway capacity (i.e., pipelines) and Gulf Coast refineries went offline, backing up crude at the wellhead.

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

Oil Down As Glut Fears Return

September 17, 2016

Oil Down As Glut Fears Return

Oil prices fell on Friday as the IEA downgraded its projections for oil demand, dashing hopes that oil markets would rebalance this year.

(Click to enlarge)

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

America’s “Soaring” Gasoline And Oil Demand Was Just An Illusion: How The EIA Fooled The Algos

July 3, 2016

America’s “Soaring” Gasoline And Oil Demand Was Just An Illusion: How The EIA Fooled The Algos

When it comes to “real-time” measurements of crude demand and supply, the data is notoriously bad (and perhaps, according to some, intentionally manipulated). We pointed this out most recently in early March when we that according to IEA data, crude oil production exceeded consumption by an average of 0.9 million barrels per day in 2014 and 2.0 million bpd in 2015. Of this 1 billion barrels which the IEA said was produced but not consumer, some 420 million are said to be stored on land in OECD member countries and another 75 million can be found stored at sea or in transit by tanker somewhere from the oil fields to the refineries. This means that as of this moment, about 550 million “missing barrels” are unaccounted for “apparently produced but not consumed and not visible in the inventory statistics.”

However, it is not only data at the annual level that is flawed: monthly, and especially weekly data is just as, if not even more distorted. In fact, as Bloomberg’s oil energy analyst Julian Lee asks, “could it be that the U.S. demand that’s helped drive a near doubling of oil prices since mid-February was illusory?”

Lee is referring to a major discrepancy in DoE reporting which through the Energy Information Administration, produces two sets of U.S. demand data that drive sentiment and influence trading. The first shows monthly figures. They’re two months out of date, but they give the most accurate assessment of what’s going on in the world’s largest oil-consuming country.

The second set of numbers come out each Wednesday, giving preliminary estimates for the previous week. For crude markets these weekly figures – though less reliable – are arguably more important, largely because they’re bang up to date.

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

China And India Rewrite The Rules Of The Oil And Gas Game

March 24, 2016

China And India Rewrite The Rules Of The Oil And Gas Game

India and China have seen exponential growth in oil demand over the past 25 years. Combined, they consume 16 percent of the world’s oil–second only to the U.S. at 20 percent. And analysts expect that by 2040, these two growing economies will double their combined consumption to 30 percent. These are game-changing numbers that have all major producers seeking inroads to this territory.

Most spectacularly, new trade routes are being established and Indian refiners are moving away from long-term contracts with Middle East nations, favouring African spot purchases, reports Reuters.

At the start of the decade, Russia supplied about 7 percent of total imports to China, compared to 20 percent supplied to China by Saudi Arabia. However, Russia has overtaken the Saudis as the largest supplier to China four times in 2015, which is significant because Saudi Arabia had lost the top spot only six times in the preceding five years, according to data from RBC Capital markets.

RBC Capital Markets’ commodity strategist Michael Tran pointed out that seven countries have beaten the growth rate achieved by Saudi Arabia in the past five years, as shown in the chart above.

“Meanwhile, Saudi Arabia is losing its crown as its selling prices in Asia haven’t been attractive enough,” claimed Gao Jian, an analyst at SCI International, a Shandong-based energy consultant, to Bloomberg in June 2015.

On the other hand, Nigeria overtook Saudi Arabia as the largest supplier to India back in 2015, as reported by Reuters.

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

A Secret About Oil You Won’t Find Anywhere Else

March 2, 2016

A Secret About Oil You Won’t Find Anywhere Else

This is going to be a far larger problem than Wall Street realizes.

In early 1983 – the first week of February, to be precise – the inventory of crude oil in the U.S. reached an all-time economic high. I say “economic high” because nominal supply of crude oil has since far surpassed its 1983 number. In fact, current U.S. crude-oil inventory (504 million barrels) is the actual all-time high. Supply today is about 150 million barrels more than total supply in 1983.

Obviously, we have a lot more oil in storage than we’ve ever had before – about 40% more. But nominal supply numbers aren’t as important as you might think. Demand for crude oil in our economy has grown a lot since 1983.

To make a bona fide “apples-to-apples” comparison to today’s supply glut, we should measure the amount of oil supply relative to consumption. In 1983, the number of days’ worth of consumption in the U.S. hit a peak of 33.4. That’s the largest amount of crude oil we’ve ever held in private storage, relative to demand. That’s the all-time highest amount of “economic supply” – supply in relation to actual demand.

Much like today’s glut, the glut of oil from the mid-1980s was caused by a sustained increase in U.S. production. More oil was coming from Alaska’s North Slope. The Trans-Alaska pipeline began operation in July 1977. It had an immediate effect on total U.S. supply.

U.S. oil production grew from 227 million barrels per month in 1977 to almost 270 million barrels per month in July 1986 – an increase in monthly production of 18.9% over nine years. As you might remember, gasoline prices fell to well below $1 per gallon… and we saw a commercial real estate and banking crisis in Texas. Houston real estate didn’t recover for 20 years.

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

Why oil under $30 per barrel is a major problem

January 19, 2016

Why oil under $30 per barrel is a major problem

A person often reads that low oil prices–for example, $30 per barrel oil prices–will stimulate the economy, and the economy will soon bounce back. What is wrong with this story? A lot of things, as I see it:

Oil producers can’t really produce oil for $30 per barrel

A few countries can get oil out of the ground for $30 per barrel. Figure 1 gives an approximation to technical extraction costs for various countries. Even on this basis, there aren’t many countries extracting oil for under $30 per barrel–only Saudi Arabia, Iran, and Iraq. We wouldn’t have much crude oil if only these countries produced oil.

Figure 1. Global breakeven prices (considering only technical extraction costs) versus production. Source: Alliance Bernstein, October 2014

2. Oil producers really need prices that are higher than the technical extraction costs shown in Figure 1, making the situation even worse.

Oil can only be extracted within a broader system. Companies need to pay taxes. These can be very high. Including these costs has historically brought total costs for many OPEC countries to over $100 per barrel.

Independent oil companies in non-OPEC countries also have costs other than technical extraction costs, including taxes and dividends to stockholders. Also, if companies are to avoid borrowing a huge amount of money, they need to have higher prices than simply the technical extraction costs. If they need to borrow, interest costs need to be considered as well.

3. When oil prices drop very low, producers generally don’t stop producing.

There are built-in delays in the oil production system. It takes several years to put a new oil extraction project in place. If companies have been working on a project, they generally won’t stop just because prices happen to be low. One reason for continuing on a project is the existence of debt that must be repaid with interest, whether or not the project continues.

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

Doom and Gloom for North American Oil Producers

January 1, 2016

Doom and Gloom for North American Oil Producers

Oil Prices

To the dismay of U.S. shale producers, oil prices continue their long slow slide into the abyss. Perhaps the current price of $35 per barrel – an 11 year low – is the final destination. More than likely, however, it’s a brief reprieve before the next descent.

Photo credit: Mohammed Ameen / Reuters

Oil exporters, including Saudi Arabia and Russia, have maintained high production rates. Their goal is to bankrupt U.S. shale companies and preserve market share. At the same time, oil demand is tapering as the global economy cools.

Global crude oil and condensate (c+c) production as of June 2015. In record high territory.

The combination of high production and declining demand has resulted in excess supply, and lower prices. The trend of lower prices won’t change until either demand increases or production decreases. At the moment, it doesn’t appear that either of these factors will change any time soon.

So how low can oil prices go? If you recall, in the late-1990s, oil prices dropped below $20 per barrel. Goldman Sachs thinks we’ll see $20 per barrel oil again.

Obviously, oil prices can’t go to zero. However, this offers little consolation for the many oil companies that borrowed gobs of money from Wall Street to leverage development of fracked wells that require $60 per barrel oil to pencil out.

Contrary to widespread expectations, Russian production has proved more than resilient in the face of low prices. The decline in the ruble and high export taxes on oil (which are based on threshold prices) have left Russian producers in a competitive situation.

Declining Hedges

So while it isn’t possible for oil prices to go to zero. It is possible for the stock prices of oil companies to go to zero. In fact, over the next 12 months there could be a rash of bankruptcy’s that results in delisted, worthless shares.

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

Doom and Gloom for North American Oil Producers

December 30, 2015

Doom and Gloom for North American Oil Producers

Lower Oil Prices

excess natural gas burns southeast of Baghdad Photo credit: Mohammed Ameen / Reuters

1-World3 Global crude oil and condensate (c+c) production as of June 2015. In record high territory.

So how low can oil prices go? If you recall, in the late-1990s, oil prices dropped below $20 per barrel. Goldman Sachs thinks we’ll see $20 per barrel oil again.

2-Russia3 Contrary to widespread expectations, Russian production has proved more than resilient in the face of low prices. The decline in the ruble and high export taxes on oil (which are based on threshold prices) have left Russian producers in a competitive situation.

Declining Hedges

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

IEA Sees No Oil Price Rebound For Years

November 11, 2015

IEA Sees No Oil Price Rebound For Years

Oil prices are likely to stay below $80 per barrel for another five years, according to a closely watched energy report.

The International Energy Agency released its 2015 World Energy Outlook (WEO), with predictions for energy markets out to 2040. Although there are no shortage of caveats, the IEA projects that oil prices will only rebound slowly and intermittently, and the supply overhang will slowly ease through the rest of the decade. In its “central” scenario, it sees oil prices rebalancing in 2020 at $80 per barrel, with increases in the years following.

At issue, as always, is supply and demand dynamics. The IEA estimates that the oil industry will slash upstream investment by 20 percent in 2015, which will cut into long-term supply figures. Non-OPEC supply will peak before 2020 as a result of much lower investment, topping off at 55 million barrels per day.

U.S. shale will recover as prices rebound, but the IEA still sees it as a passing fad. As the sweet spots get played out in the U.S., and costs remain elevated compared to other sources of production from around the world, shale will not be around for the long haul. The IEA sees U.S. shale output plateauing in the early 2020s at 5 million barrels per day. Thereafter, it declines.

The IEA weighs a scenario in which oil prices don’t actually rebound in the medium to long-term, however. In this scenario, OPEC continues to pursue market share, U.S. shale remains resilient, and the global economy doesn’t perform as well as expected. All of that adds up to oil prices remaining at $50 per barrel through the remainder of the decade and only rising to $85 per barrel by 2040.

Of course, there is a flip side to that coin. Persistently low prices gut investment in new sources of supply, which sow the seeds for a supply shortage in the years ahead. As a result, prices could spike.

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

What The Oil And Gas Industry Is Not Telling Investors

November 2, 2015

What The Oil And Gas Industry Is Not Telling Investors

Oil prices crashed because of too much supply, but will rebound as production shrinks and demand rises. But what if long-term demand for oil ends up being sharply lower than what the oil industry believes?

That is the subject of a new report from The Carbon Tracker Initiative, which looks at a range of scenarios that could blow up oil industry projections for long-term oil demand.

Historically, Carbon Tracker says, energy demand has been driven by population, economic growth, and the efficiency (or inefficiency) of energy-using technologies. Carbon Tracker looks at a couple possible future scenarios in which those parameters are altered, resulting in dramatically lower rates of oil consumption.

Carbon Tracker has been a pioneer in the concept of “stranded assets,” the notion that fossil fuel assets will lose their value as the world moves to restrict carbon emissions. If an oil field cannot be produced profitably in a carbon-constrained world – or cannot legally be produced because of certain regulations – then it ceases to have value. That puts investors’ dollars at risk, a risk that financial markets have not fully grappled with.

However, in a new report, Carbon Tracker expands upon the possible scenarios in which oil demand may not live up to industry predictions.

For example, if the world population hits only 8.3 billion by 2050 instead of the 9.7 billion figure typically cited by the UN, fossil fuel consumption could end up being 17 percent lower in 2050 than the oil industry thinks. Coal would be affected the most, with 25 percent reduction in demand compared to the business-as-usual case.

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

The Global Oil Supply: Implications for Biodiversity?

November 1, 2015

The Global Oil Supply: Implications for Biodiversity?

The following is an overview of my recent lecture to the Linnean Society of London, which is named in honour of Carl Linneus, who among many other accolades has been described as “The father of modern taxonomy”, and is also considered as one of the founders of modern ecology. It is the world’s oldest active society for the biological and environmental sciences, and the roll call of its Fellows includes such great names as Charles Darwin and Alfred Russel Wallace.

The lecture itself can be viewed here: https://vimeo.com/143163653

The link between the global oil supply and biodiversity is not directly causal; rather, the two are elements of a broader and more integrated picture. Of the energy used by humans on Earth, crude oil represents the lion’s share (33%), followed closely by coal (30%), with gas in third place at 24%. Traversing the gamut of energy sources, we find nuclear energy (4%) and hydro-power (7%), with renewable energy (wind and solar) entering the final furlong at just above 2% of total energy use, meaning that around 88% of our energy is furnished by the fossil fuels. 100 years ago, oil could be produced at an EROEI of 100, while this is now nearer to 17 as a global average, and falling, as unconventional oil sources increasingly make up for the decline in conventional production. So it’s becoming increasingly harder to maintain the oil flow into global civilization.

The Global Oil Supply.

We produce around 30 billion barrels of oil every year, which is absolutely staggering, and depending on exactly what you count as oil, this works out to 84 million barrels a day, or about 1,000 barrels every second. The major producers are Saudi Arabia and Russia, who between them produce around one quarter of the world’s oil supply….click on the above link to read the rest of the article…

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