Category Archives: International Energy Agency

IEA Warns Oil Demand Peaks After 2040

 Issue 121 – Oil Demand Still Peaking

Introduction…Reuters- The Paris Climate Change Agreement is not expected to reduce long-term oil demand according to The International Energy Agency (IEA,)

Oil demand peak…The IEA expects oil demand to peak sometime after 2040. The Paris accord attempts to wean the world off fossil fuels in the second half of the century.  The demand for automobile fuel may drop, but other uses may rise in offset.

“The difficulty of finding alternatives to oil in road freight, aviation and petrochemicals means that, up to 2040, the growth in these three sectors alone is greater than the growth in global oil demand,” the IEA said in its annual World Energy Outlook.

Oil price to rise…“In the New Policies Scenario, balancing supply and demand requires an oil price approaching $80 a barrel in 2020 and further gradual increases thereafter,” the IEA said, leaving its price forecast under this scenario unchanged from last year’s World Energy Outlook.

In conclusion…The IEA is expecting the oil age still has many years to grow.

Oil Shortage, Price Spike Predicted

Oil Price Spike Predicted

Introduction — Rising Canadian and U.S. production will not be enough to make up for tepid global investment, leading to a supply shortage in oil markets in a few years, a International Energy Admisitration report published last Monday said.

In its annual five-year forecast released in Houston Monday, energy watchdog Paris-based International Energy Agency said “it is far from clear that enough projects will enter the pipeline in the next few years to avoid a potentially tight market by 2020 and with it, the possibility of a price spike.”

The report comes as major oil and gas producers continue to slash their exploration budgets amid lower oil prices. Years of sharply growing oil supply have put the market into a state of oversupply in recent years, depressing prices. That led to widespread retrenchment on the part of debt-laden major oil producers. Late in 2016, OPEC and its non-OPEC allies agreed to curb supplies in an attempt to put oil markets closer into balance.

In Summary…$25 trillion investment in new oil-producing capacity over the next 25 years needed to meet the growing demand as reported here in this newsletter.

Source: “IEA predicts oil supply shortage and price spike within three years,” Financial Post, Jesse Snyder, 6 Mar 2017; “$25 Trillion Investment Needed, Oil And Gas Insider, Bill Moist, 22 Jan 2017

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.

The Oil Glut is Over

Oil Glut Is Over

The Oil Glut is Over So says the world’s most powerful oil man.  The newly appointed Saudi Oil Minister Kalid Al-Falih declared the oil glut over at the Saudi Armco facilities in Houston, Texas last week.

Speaking to the Houston Chronicle about the oil crisis the and the supply glut, Al-Falih said, “We are out of it,” and noted that we would continue to see gradual upward movement in the price of oil.

The oversupply has disappeared. We just have to carry the overhang of inventory for a while until the system works it out,” the oil minister was quoted as saying.

The Energy Information Administration (EIA) last week reported a 900,000 barrel draw on U.S. crude inventories, but that still leaves a 530.6-million-barrel stockpile that will take some time to chip away at, according to the Saudi oil minister.

“The question now is how fast you will work off the global inventory overhang. That will remain to put a cap on the rate at which oil prices recover. We just have to wait for the second half of the year and next year to see how that works out,” the Minister told the Houston Chronicle.

Al-Falih also noted on the Saudi Aramco website that due to the Saudi kingdom’s “strategic importance” it will “be expected to balance supply and demand once market conditions recover.”  As reported by Charles Kenedy of Oilprice.com.

In Conclusion…Saudi Arabia was unwilling to reduce oil production when the price colapsed  November 2014.  However, the law of supply and demand has worked to reduce supply and increase demand.  It appears that the Saudi’s impact on oil pricing is on the wane.  Nevertheless, Al-Falih recent comments may give some reason to hope for better days to come in the oil patch.

Shale Oil Shifting Balance Of Power

Crude Oil OutagesBalancing Oil Supply…The Organization of Petroleum Exporting Countries’ abiility to balance global supply (and prices) now limited by shale oil production, a former Qatari energy minister said.

OPEC was able to balance the market in the past because because shale oil deposits and other non-OPEC nations output was insignificant, Abdullah bin Hamad told reports at the industry even in Doha.

“OPEC can’t act as swing producer because it will lose market share,” said Al-Attihay former Qatar energy minister.

Crude prices tumbled more than 75% from the 2014 peak due to the global glut in part due to U.S. shale oil production.

Market Forces…“Frankly, I don’t expect anything from the next OPEC meeting because OPEC decided not to play against the market,” IEA former executive.  “Market forces are too strong now, and you can’t play against those forces whey they are strong.”

“Just cut production by 1.5 million barrels a day and the next day the prices goes up and the other oil producers will take the whole share–there is no benefit for OPEC in that,” Al-Attiyah.

Crude Oil Outages Soaring…Escalations in sabotage, tech problems, and natural disasters are impacting world crude oil supply as documented by the EIA in the above diagram for the last 12 months.  This increase in outages most likely are a factor in the recent oil price increases to $50 a barrel.

In Summary…The closer a market looks and acts like an oligopoly (a state of limited competition,) the greater the pricing power those producers have by limiting production.  The good news is the pricing power has shifted away from OPEC to where now the market as a whole is determining pricing.  From a U.S. national security perspective, we are more secure now due to this shifting of market pricing power.

Get Free Updates Oil & Gas Reports by subscribing at http://oilandgasinsider.com

Source: “Shale Oil Seen Stifling OPEC’s Classic Market-Balancing Act,” Wael Mahdi, Bloomberg, May 256 2016

Oil Price Spike Close?

WTI Crude Pricing

We are beginning to see the first real signs of the global oil markets moving rapidly back into balance. OPEC, which produces approximately 40 percent of the world’s oil supply, cannot meet future oil demand on their own.

Supporting data follows that supports the analysis that oil price spike may be close:

  • On May 11th the U.S. Energy Information Administration (EIA) reported that U.S. crude oil production declined by 206,000 barrels per day over the six weeks ending May 5, 2016.
  • U.S. crude oil inventories unexpectedly fell by 3.41 million barrels during the week ending May 6, 2016
  • Gasoline inventories declined by 1.231 million barrels’=
  • Distillate stockpiles fell by 1.647 million barrels
  • The International Energy Agency (IEA) say the annual summer spike in demand for transportation fuels has begun.
  • On Friday, May 13 an explosion closed a second Chevron facility in Nigeria, Africa’s biggest oil producer
  • Exxon Mobil also reported on May 13 that a drilling rig damaged a pipeline, shutting off more production of crude. Nigeria’s oil production was already down 600,000 barrels per day before these two incidents, primarily the result of militant attacks.
  • Latin American oil production is now down close to 500,000 bpd from year ago levels.

In conclusion…If history repeats itself, the demand spike will be even larger. In 2010, the final year of the last major oil price cycle, the IEA began the year forecasting a 1.0 million barrel per day increase that year. Actual demand growth was 3.3 million barrels per day. The forecast error made in 2010 was that IEA’s formula for calculating demand, did not consider the impact of lower fuel prices on demand. IEA may have made the same mistake this time around.

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.

Oil Is Still In Demand

oildemand-forecasts Everything about the oil market – 2015 and 2016 – is peculiar.  Oil prices have plummeted, yet production has not.  This is defying textbook economics.  In some big oil producing regions, output is actually rising.  Demand is up too, yet prices keep falling.

How to make sense for this?  This particular price collapse is unlike the others, so history is not an accurate guide.

The variable that seems to apply to this particular price collapse is supply and lots of it.  Supply has been outpacing demand, which is why any rally since the downturn is short-lived.  Prices are down 35% in the last year and about 70% in the last year and a half.

Much of the theory for weak demand is blamed for oil pricing collapsing.  It is far more sensible to blame rising supplies.  As supply glut builds, oil prices could fall even if global demand stays or rises.  On last Tuesday, the World Bank sliced its 2016 forecast from and average crude prices of $37 a barrel, from its previous forecast of $52.

Almost $400 billion of crude oil projects have been suspended.  The IEA says energy-project spending fell 20% last year and is on similar course this year.

The best cure for low oil prices is low oil prices as economists say.

Source: Oil is still in demand -it’s the glut that is hurting price by Eric Reguly, The Globe And Mail, January 29, 2016

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.