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Page added on June 17, 2015
Peak Oil? Yes, Absolutely – Peak Oil Demand
You should never bet against the capability of oil investors to turn the world completely upside down.
A great example occurred on Wednesday of last week, as Arthur Berman argues in this excellent article.
He points out that Brent crude surged from $62 a barrel to $65 a barrel on 10 June, despite the US Energy Information Administration announcing on that very same day that the global oil production surplus in May rose to almost 3 million barrels.
‘Not to worry, ‘demand growth is robust,’ the oil markets seemed to be saying.
But if you look at the same EIA report, you will find that whilst worldwide oil production declined by 106,000 barrels per day, consumption fell more by 156,000 barrels per day.
It is supposed the job of oil futures markets to anticipate the future – that’s why they are, of course, called futures markets.
Perhaps, therefore, they are good right now at seeing around the corner, and so are accurately anticipating a tightening of markets that many of the rest of us are missing?
No. Last week’s rally to $65 a barrel was just another example of speculators chasing yield in a world of record-low interest rates.
And, anyway, if futures market were so good at their jobs, why did they completely miss the H2 collapse in prices?
On Thursday, Friday and Monday, though, as you all no doubt know, investors took fright, resulting in a decline in oil prices.
But let’s be positive. Perhaps investors finally woke up to reality after reading the 11 June report from the Paris-based International Energy Agency, which showed that the global production surplus for the first quarter of 2015 was the highest in a decade at 1.85 million barrels a day? (See the above chart).
Again, no. They probably just panicked, and/or engineered a little more volatility, which is their meat and drink.
The trouble is that the speculators which have, of late, bought some 500 million barrels of oil futures, are playing a very, very high risk game, and here is why:
- As the Fed prepares to raise interest rate, and as China continues its painful economic reform programme, the oil markets will return to their previous hugely valuable role of genuine price discovery. In other words, they will reflect genuine supply and demand.
- And when that happens, it will become transparent to everyone that supply of energy will be well ahead of demand over the long term because of the secular decline in the global economy.
- The other reason that oil consumption will weaken is growing energy efficiency. The world has turned a corner as the consensus view now is that climate change is man-made, whether you like it or not.
- And here’s another thought: What if the Saudis recognise this, and so are determined to pump as much as possible over the next decade and more? The alternative is for them to cut back production, only to see their oil left in the ground because of greater energy efficiency and the shift to natural gas and renewables.
Returning to the short term, petrochemicals companies must prepare for a major downward correction in oil prices in the second half of this year as investors take flight, which would reveal the real state of supply and demand.
And they must then plan for a world where they will be responsible for generating their own demand as demand will be in short supply – unlike oil.
This long-term planning must also include the possibility of multiple global taxes on using carbon, in whatever form these taxes might take.
8 Comments on "Peak Oil? Yes, Absolutely – Peak Oil Demand"
Nony on Wed, 17th Jun 2015 7:56 pm
The market is forward looking. Yeah inventory builds are interesting but so are rigs getting stacked. Right now the market judges 60 for WTI and 65 for Brent as making sense and with a couple bucks rise over the next year or so. Nothing dramatic either way.
P.s. I would love it if we could get back down to 40. But I don’t see the supply at that price.
GregT on Wed, 17th Jun 2015 8:26 pm
The free market is dead. It died the moment the government used tax payers money to bail out the TBTF.
The market is now a casino, and it is rigged.
“A fool and his money are soon parted.”
Get out before you lose your shirt Nony.
Plantagenet on Wed, 17th Jun 2015 9:06 pm
The oil glut could get worse and oil prices could indeed go lower eve if Berman is right—–it really doesn’t matter if the glut is caused by overproduction or dropping consumption.
Are we at peak oil demand? I doubt it, especially as world population is still on track to add billions more people over the next several decades, and India and China continue to growth their GDP by 5-10% per year. However, there is little doubt the EU and USA economies are close to a stall out.
GregT on Wed, 17th Jun 2015 10:27 pm
“it really doesn’t matter if the glut is caused by overproduction or dropping consumption.”
Unless of course, you enjoy the age of oil, and modern industrial society. If that’s the case, then dropping consumption’s a bitch.
BobInget on Thu, 18th Jun 2015 2:18 pm
Saudi Arabia on Thursday signed six agreements with Russia including the peaceful use of nuclear technology, Al Arabiya News Channel reported.
The news comes after Saudi Deputy Crown Prince Mohammed bin Salman bin Abdulaziz met with Russian President Vladimir Putin at the Konstantin Palace in St. Petersburg on Thursday after arriving in Moscow late Wednesday in an official visit, the state-run Saudi Press Agency (SPA) reported.
Meanwhile, two sources told Reuters that the oil ministers of Russia and Saudi Arabia plan to discuss a broad cooperation agreement on Thursday at an economic forum in St Petersburg.
Saudi Arabia is the top producer in the Organization of the Petroleum Exporting Countries and the world’s top oil exporter, while Russia, which is not an OPEC member, is the second biggest oil supplier to the global markets.
One source said the agreement to be discussed between Russian Energy Minister Alexander Novak and Saudi Oil Minister Ali al-Naimi would not be about joint oil production or export strategy.
Russia has stepped up contacts with OPEC after oil prices plunged last year, but it has dismissed any suggestion it might cut output to prop up prices. OPEC has also refused to curb its output in order to defend market share.
A spokeswoman for Russia’s Energy Ministry confirmed the meeting but declined to comment on the agenda.
Prior to the meeting to meeting, the Saudi ambassador to Russia Abdulrahman Al-Rassi said Moscow has an “important” role in implementing a Security Council resolution on Yemen, SPA reported him as saying on Thursday.
Rassi said there was an agreement between Saudi Arabia and Russia on maintaining legitimacy of Yemeni President Abd Rabbu Mansour Hadi’s government, and that Moscow was key in implementing Resolution No. 2216, which demands that the Iran-backed Houthi militias withdraw from all areas seized during the latest conflict and relinquish arms seized from military and security institutions.
He said Russia’s role was also “important” when it comes to regional countries such as Iran, stressing that Russia was a super and important power in the Security Council to “maintain stability and security in the world.”
He added: “I think that Russia is feeling this responsibility and we always hope and talk with Russian officials on the Iranian issue or other. I do not think that Russia’s interest is in the instability in the region and this is certain.”
Melee erupts between Yemen govt supporters
Meanwhile in a related story, Supporters of the Yemeni government in exile interrupted a press event given by Houthi officials in Geneva on Thursday, throwing shoes and insulting them as “criminals” and “dogs” who were “killing children” in Yemen.
Hamza Al-Houthi, head of the Houthi delegation to U.N.-sponsored peace talks in Geneva, stayed composed throughout the melee of several minutes that began when a woman in a headscarf went to the podium and threw a shoe at him, an insult in the Arab world.
“They are killing the children of south Yemen,” a pro-government supporter shouted before a fistfight broke out between Houthis and government supporters. The latter were then escorted out.
(With Reuters)
Last Update: Thursday, 18 June 2015 KSA 20:23 – GMT 17:23
Saudi Arabia manages to get Russia into the fold. Little do they know Putin is in it for the entire ball of wax. This reminds me of the
Stalin Hitler pact of the 1930’s . We know how that one worked out.
For now ladies and germs expect both nations to ‘say’ they are lowering production.
Because demand, because of three Saudi wars, is indeed higher stock will dwindle.
The big question remains… What do Iranians think about this hitler/stalin nonaggression pact?
No oil producing country wants lower oil prices. So, for now I believe Iran will hang tough. I don’t know which one Iran fears more Russia or KSA. If they are as smart diplomatically as we know they are it will be Russia on the move and KSA in death spiral.
Outcast_Searcher on Thu, 18th Jun 2015 10:42 pm
Whatever you do, omit the most fundamental mid to long term growth factor for oil demand – Chindia.
Because after all, if you want to preach that oil demand is bound to be terrible, you sure wouldn’t want to talk about projected Chindia demand growth!
Hint: Good luck assuming you’re smarter than the entire world (re The Wisdom of Crowds concept – ref. book by James Surowiecki) about the future price of oil.
Ted Wilson on Fri, 19th Jun 2015 9:42 am
Since the Year-2000, the # of vehicles running on Biofuels, Natgas, LPG has increased from 3 million to 90 million with another 10 million Hybrids, Plugins and Electric vehicles were sold.
Also many of the Oil fired power plants and heating systems were converted to other fuels.
Now you know why the Oil demand is tanking. OPEC has shot in its own foot. But don’t be complacent, as the # of vehicles increase, the oil prices could raise again.
Apollo on Mon, 22nd Jun 2015 1:46 am
What a load of nonsense. These people think everyone is dumb, you can just invent this peak demand idea that everyone believes it.
Now even supposedly independent pundits try to feed this BS on the populace. Are they on the payroll too?