Category Archives: World Oil Demand Growth

Crude Prices Rise On OPEC Statement

Barrels of Oiloil-workers

OPEC Commnets...While the Organization of the Petroleum Exporting Countries (OPEC) no longer wields the same power over global oil markets it had 40 years ago, it can still make some noise when it wants to. And Monday, OPEC wanted to.

The cartel’s new president, Mohammed Bin Saleh Al-Sada, who is also Qatar’s oil minister, said in a statement that he expects higher oil demand in the second half of 2016. These words tacked a gain of around 3% onto crude prices.

Al-Sada added that prices have experienced “steady improvement” since February following “a decline in crude oil production, supply outages and a decrease in oil inventories, while global demand for oil improved.” He also added that the recent (current?) decline in prices and higher volatility is “only temporary,” according to the press release:

These are more of an outcome resulting from weaker refinery margins, inventory overhang – particularly of product stocks, timing of Brexit and its impact on the financial futures markets, including that of crude oil.

Since June 1, the price for an OPEC reference basket barrel has dropped from $44.68 to $40.08, more than 10%. The reference basket price rose by nearly $1 as of July 1, but it’s been steadily downhill since then.

In Conclusion...Is OPEC just talking its book, hoping to push up the price? While it wouldn’t be the first time that has happened, it is more probable that the cartel, like the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA), really believes that global demand will rise, global inventories of oil and refined products will fall and production will continue to slow down, especially in North America.

What’s Driving Oil Price Rally?

internatioanlrigcount

Oil prices plunged to their lowest levels in more than a decade earlier this year, but have since rallied by more than 70 percent from their February lows. Now oil is at a crossroads: the market is balancing, but not quickly enough. Oil traders are gaining confidence, but with oil trading at $45 per barrel, is the risk more to the upside or downside? Will the rally continue or will prices fall back again? And what about the long-term? Will today’s investment cuts lead to future shortages?

Brent crude oil for July delivery traded as high as $48.29 on Friday before dropping to below $47 a barrel on various reports that OPEC production had increased in April. The December futures contract traded as high as $49.65 on Friday, not a large spread, but as close as Brent futures have been to $50 a barrel in some time.

Part of the reason for that is that Brent prices well above $50 a barrel are not in Saudi Arabia’s interest. The kingdom has invested tens of billions of dollars in driving high-cost producers (mostly in the United States) to shut down production, and the effort has paid off. But if Brent rises much past $50 a barrel, the Saudis’ leverage diminishes, unless it also raises production to drive prices down again.

Neil Atkinson,  the Head of the Oil Markets Division at the International Energy Agency based in Paris responded recently to questions asked by oilprice.com: It can be argued that the sell-off to below $30/bbl was an over-reaction to the downside. The bounce bck to $45/bbl is partly explained by the strike in Kuwait, production interruptions in Nigeria, UAE and Iraq, and the growing perception that US shale oil production is declining. The bounce back is also due to the fact that investors are more forward looking than they used to be and the possibility of the market returning to balance around the turn of the year is a supportive factor.

He continues: The IEA has warned consistently that inadequate investment today could sow the seeds of a price shock tomorrow if there is a major change to the expected supply/demand balance. Towards 2020 there is the possibility that, if annual global oil demand growth were to exceed the 1.2 mb/d level forecast by the IEA and there was a geo-political event leading to a major supply shortfall, there could be insufficient spare production capacity to fill the gap. The resultant price spike would be detrimental for the world economy.

In conclusion… Current demand supply curve is not the only factor in oil pricing.  The decline in world rig count, the cancelation of many billion dollar plus projects by the majors, and the expected growth in future oil demand are all impacting the futures markets.  Maybe Mr. Atkinson is correct in his analysis that the $30/bbl pricing was an over-reaction to the downside.

Stalemate To Persist In OIl Market

The “big news” this month is that the banks granted over-leveraged, loss-making shale oil drillers a stay of execution by continuing to provide credit lines. Consequently, there was no major move in U.S. oil drilling or production, though both are trending down. Elsewhere, the story is one of production plateaus and stabilization of rig counts. The modest production rises and falls detailed below are simply noise on these production baselines.

Against this backdrop of no news, the oil price traded sideways in October. OPEC countries, Russia and International Oil Companies are all losing billions and look set to continue doing so throughout 2016 as over-supply now looks likely to remain until early 2017. The situation is one of stalemate as opposed to checkmate.

  • World total liquids production down 80,000 bpd to 96.56 Mbpd.
  • OPEC production down 90,000 bpd to 31.72 Mbpd (C+C)
  • N America production down 220,000 bpd to 19.46 Mbpd.
  • Russia and FSU up 60,000 bpd to 13.94 Mbpd
  • Europe up 140,000 bpd to 3.30 Mbpd (compared with August 2014)
  • Asia down 30,000 bpd to 7.91 Mbpd.
  • Middle East rig count is stable. The international oil rig count has stopped falling. The U.S. oil rig count has turned down again.

supply and demand data form IEA.First Q 2014 over-supply has persisted.  Since first quarter 2014 over-supply situation has persisted – IEA

Summary…OPEC, Russia and the FSU, SE Asia and Europe are all producing at plateau levels with no significant moves up or down in recent years. The only region with significant trend is N America where declines of 660,000 bpd from the April peak are modest compared with the production growth that preceded the peak and current over-supply running at 1.5 Mbpd.

Source: Oil Market Stalemate To Parsisit Until End of 2016? OILPRCE, by Euan Means, November 2, 1015.

World oil demand jumps more than expected

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IEA Glogal Oil Demand

Introduction….We’ve been focusing most of our attention in relations to oil pricing to the supply side of the equation.  However, when the demad side increases prices also increase.

World oil demand will rise much more than expected this year… the International Energy Agency (IEA) said on Thursday, in the latest sign that the collapse in oil prices is helping to boost fuel use.

The agency in its monthly report raised its forecast for global oil demand growth in 2015 by 280,000 barrels per day (bpd) to 1.40 million bpd, bringing demand this year to almost 94 million bpd.

“Recent oil market strength of course partly stems from unexpectedly strong global oil demand growth,” said the IEA, which advises industrialised nations on energy policy.

Oil prices have staged a recovery this year after hitting a near six-year low close to $45 in January. Prices collapsed from $115 in June 2014 in a decline that deepened after OPEC refused to prop up prices and chose instead to defend its market share.

By 0800 GMT on Thursday, benchmark Brent crude was trading around $65.75 a barrel.

Strong supply...As well as resurgent demand, the IEA report also pointed to strong supply. Production by the Organization of the Petroleum Exporting Countries rose to 31.33 million bpd in May, its highest since August 2012, and is likely to remain above 31 million bpd in coming months, the IEA said.

And the IEA raised its forecast of supply growth from non-OPEC producers this year by 195,000 bpd to 1 million bpd, citing an upward revision to U.S. data and fewer summer maintenance shutdowns in other regions.

“Lower oil prices and a drop in capital spending are taking time to curb non-OPEC supply,” the report said.

“Despite signs of a slowdown in non-OPEC supply, notably in the U.S., global production growth remains exceptionally high.”

One omission in IEA’s projections for the years after 2016…The middle class is not growing significantly in the United States and other G7 countries.  Instead the largest increase in middle class will be Asia Pacific, Africa, South and Central America.  In fact, global middle class is expected to rise from two billion to five billion people by the year 2050.  We know that rising middle class want more stuff, bigger houses, nicer automobiles which all take significantly more oil.

Conclusion…Its reasonable to expect prices to rise the remainder of the year.  And the EIA’s future oil growth demand my be understated if we ignore the worldwide middle class growth.

Sources: “World oil demand jumps after price slump – IEA,” Rueters, by Christopher Johnson and Alex Lawler, June 11, 2015: “The rise of the middle class,” BBC, by Linda Yueh, June 19, 2013; “Global Oil Demand Growth,” International Energy Agency, 2000 to 2020