March Industry Affairs

IEA raises global oil demand estimate for 2018
HOUSTON, Mar. 15
03/15/2018 By OGJ editors
Global oil demand is expected to rise 1.5 million b/d to 99.3 million b/d in 2018, according to the International Energy Agency’s most recent Oil Market Report. This represents a 90,000-b/d increase compared with last month’s report.
In the March OMR, oil demand of countries in the Organization for Economic Cooperation and Development has been revised up by 240,000 b/d in 2018, reflecting the impact of recent strong data and lower prices. Recent data show strong demand growth in Poland and Turkey. US demand also has been revised higher, reflecting the impact of low temperatures in January and February on gas oil demand and as lower prices are expected to boost gasoline consumption. Japan’s 2018 oil demand is likely to be stronger than expected in IEA’s previous forecast.
By contrast, non-OECD demand has been revised down by 150,000 b/d for 2018. In Asia, small upward revisions in China and India almost offset downward revisions to Pakistan, where fuel oil deliveries fell sharply on new LNG imports. Demand estimates for Russia and the Middle East also were revised down. Revisions in the Middle East reflect the rapid displacement of crude oil for direct-use electric power generation by imported and domestic natural gas production in Iraq.
Regarding economic fundamentals, “world economic growth is expected to accelerate from 3.7% in 2017 to 3.9% in 2018, and this pick-up in growth will be broad-based,” IEA said.
However, “recent signs of protectionism from the US are a risk to the forecast, raising the possibility of a global trade war,” it said.
Supply
On supply, new and revised data shows very little change in the outlook compared with last month, IEA said.
IEA retains the view that total production from nonmembers of the Organization of Petroleum Exporting Countries rose by 760,000 b/d last year and that it will surge by 1.78 million b/d this year. The US dominates growth, accounting for 1.5 million b/d of the total increase. Gains also will come from Canada, Brazil, and Kazakhstan. This will offset declines elsewhere including in Mexico and China.
For February, non-OPEC supply was 58.9 million b/d and stood 810,000 b/d higher than a year ago. OPEC crude oil production edged lower to 32.1 million b/d, led by losses in Venezuela and the UAE.
“Further declines in Venezuela raised OPEC’s compliance rate in February to 147%, the highest so far, and lifted the average since the start of the deal to 102%. Compliance by the non-OPEC countries was less impressive at 86%, but still robust,” IEA said.
Stocks, rebalancing
Commercial oil inventories in OECD nations rose in January for the first time in 7 months by 18 million bbl to 2,871 million bbl, 53 million bbl above their 5-year average.
The January increase of 18 million bbl over the December inventory level was roughly half the size of rises normally seen at this time of year, according to the agency.
“Market rebalancing is clearly moving ahead with key indicators—supply and demand becoming more closely aligned, OECD stocks falling close to average levels, the forward price curve in backwardation at prices that increasingly appear to be sustainable—pointing in the direction. In our chart, we assume for scenario purposes that OPEC production remains flat for the rest of 2018, and on this basis there will be a very small stock build in the first quarter of 2018 with deficits in the rest of the year. With supply from Venezuela clearly vulnerable to an accelerated decline, without any compensatory change from other producers it is possible that the Latin American country could be the final element that tips the market decisively into deficit,” IEA said.

Projections For Peak Oil Demand Are Overblown, Says Dan Steffens
Mar. 15, 2018 5:47 AM ET
By FS Staff
(Source: Bloomberg)
While oil prices trade above $60 a barrel, up over 40% from their June 2017 lows, energy stocks have languished. Why the disconnect, and will this persist?
This time on Financial Sense Newshour, we spoke with Dan Steffens from Energy Prospectus Group to get his outlook on the energy sector, US shale production, and concerns over peak oil demand.
US Shale Production Fears Overhyped
With both the EIA and IEA projecting for the US to produce more oil than Saudi Arabia next year, some are concerned that this will set a cap on oil prices and hamper gains for energy-producing companies as a whole.
This isn't as big an issue as some fear, Steffens said, because demand for oil is going up by 1.5 million barrels a day per year, and he expects it to rise still higher from there.
Also, it's important to keep in mind that shale oil production tends to drop off precipitously. Horizontal wells will decline at a 30-40 percent rate per year, Steffens noted.
"I think we're going to see an increase in demand from the first quarter to the second quarter of about 2 million barrels a day as we come out of the winter driving season," Steffens said. "I've been watching EIA for a long time... The math just doesn't work. Sooner or later, you just can't drill enough new wells to make up for the decline in older wells. I think that's going to come into play in about a year or so."
Further Catalysts for Energy Stocks
"The global economy's growing," he said. "We're in an economy that is very dependent on a steady supply of this stuff, and we're below the 5-year average on days of supply."
There are also price catalysts to consider. While Steffens isn't as worried about shale keeping a lid on prices, some are concerned about OPEC's production cutback agreement expiring this year. This isn't really a problem, however.
First, it would be a bad decision for the cartel to immediately start flooding the market with increased production. In addition, Steffens doesn't think they have the excess production capacity. Those countries that can cheat would cheat, but that's not what we're seeing.
"I think they've learned their lesson," Steffens said. "They were the biggest losers when the price went way below $40. I honestly think when they started this, they expected the price to level off at $60 for a while, and they thought that would be enough to put the fear of God in the shale players. But it's just kept going, and they've lost."
Are We At Peak Demand?
Some believe renewables and electric cars are going to eat up demand for oil, and the IEA has projected that sometime next decade, demand is going to peak.
This fear is also exaggerated, Steffens stated. Demand for electric cars is limited, as they are still too expensive, and the battery problem needs to be solved first before electric cars make a big dent in oil demand.
Currently, Steffens sees a lot of great value in energy stocks. The low tax rates have helped their bottom lines tremendously, and oil above $60 is supportive, he noted.
Demand for renewables "is going to increase, there's no doubt about it," Steffens said. "But the pie just keeps getting bigger... I think we're going to be very happy we have the technology, because at some point in time, these shale plays are going to level off just like everything else. The shale is the source rock. After we pull the oil out of the source rock, there's not a lot left."