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Page added on April 25, 2018

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Goldman: Oil Demand Will Continue To Soar

Consumption

Oil demand is growing, and production is falling. This is the message we have been receiving for a few weeks now with increasingly frequency, especially after OPEC’s leader Saudi Arabia admitted it would like oil prices even higher than US$70. Like a genie from a lamp, the market immediately obliged with traders rushing in to buy more oil, pushing Brent closer to US$75.

Everyone who’s anyone seems to be upbeat about demand. The IEA forecasts daily demand growth at 1.5 million bpd this year. Reuters shipping data suggests April imports into Asia will hit an all-time high. Investment banks are bullish. What could go wrong?

If you listen to Goldman’s Jeffrey Curry, nothing. In a recent interview with Bloomberg, Currie said, “You’d have to get a really high price before you start to see it damage demand, adding that higher oil prices were actually good for the global economy because higher oil prices lead to creation of global excess savings – petrodollars,” which are then invested again globally, stimulating further demand.

In case anyone suspects there is something wrong with this rosy picture, they are right. For starters, these “global excess savings” will only come after oil producers close their budget gaps. Saudi Arabia alone has budgeted a deficit of more than US$50 billion for this year. It will be a while before it gets to have any savings, let alone excessive ones, to invest globally and stimulate oil demand. This is true of other major producers, too, as they all were hit hard by the last oil price crisis.

Leaving budget deficits aside, there is also the problem with inflation. Since virtually every single economy in the world is dependent on oil, inflation is closely linked to prices. Higher oil prices mean higher fuel prices and higher fuel prices drive higher inflation. Although in some circumstances higher inflation could be a welcome development, this doesn’t seem the case right now.

Another question that needs asking is whether it is really demand that driving oil prices right now. Commerzbank’s head of commodities, Eugen Weinberg, thinks not. Weinberg told Oilprice there were four distinct drivers behind the latest price hike in oil. First, there are worries about Venezuela’s oil production, which is at its lowest since 1950. Second, there is Saudi Arabia’s “wishful thinking” about oil at US$80-100 a barrel. Thirdly, Weinberg also noted the possibility of new U.S. sanctions against Iran, which this week pushed Brent even higher. Finally, Commerzbank’s head of commodities said, there was a massive influx of money from money managers: net longs on crude on both ICE and Nymex are at record highs.

Meanwhile, production outside OPEC is growing, and specifically production in the United States. The avalanche of upbeat comments from the OPEC camp has displaced the concern about the consistent and strong growth in U.S. shale production from the mind of the oil-industry beholder, but the growth is still there even if ignored

Last week, U.S. producers pumped 10.54 million barrels daily. This is more than a million barrels daily higher than production at the start of January. In other words, U.S. producers have expanded their production by more than a million bpd in less than four months. At this rate of growth, it’s not hard for one to imagine where U.S. production could be in another quarter. This trend will certainly have a marked impact on prices when the hype around OPEC’s latest meeting subsides, as will any revisions of demand forecasts in light of higher prices.

In this context, the prospect of Iran sanctions could remain the lead driver behind a further price rise if they ever materialize. After all, President Trump shared his unhappiness with higher oil prices last week, and he must be aware of what a fresh round of sanctions against Iran would do to these same too-high prices.

By Irina Slav for Oilprice.com



13 Comments on "Goldman: Oil Demand Will Continue To Soar"

  1. eugene on Wed, 25th Apr 2018 7:28 pm 

    With ever present US optimism, I imagine we can produce, at least, an infinite amount of oil every day. After all, we’re the greatest, the most honest, chosen by god, the most religious, the most creative and all the rest of the American bullshit.

  2. "Lucifer" on Wed, 25th Apr 2018 8:32 pm 

    Eugene, Americans chosen by God, lol. More like cursed by him. In my great opinion Americans are arrogant, greedy and pretty stupid. when the collapse does come the US will fall a long away down and end in a fiery demise along with most of the other countries in the world.

  3. beingfrank on Thu, 26th Apr 2018 1:19 am 

    “After all, we’re the greatest, the most honest, chosen by god, the most religious, the most creative and all the rest of the American bullshit.”

    What on earth does it do to an individual’s psyche to be born into the middle of that mess. How would you even start to sort yourself out? The Big Question – is it fear or lazyness that keeps 90+% trapped in this belief system?

  4. makati1 on Thu, 26th Apr 2018 2:04 am 

    beingfrank, I think it is pure greed and ignorance. Over half of the population is being paid by the government to be slaves. (welfare, subsidies, overpaid government jobs with beenies, etc.) The others are benefiting in other ways or are just brainwashed. Bread and Circus’. When the war/depression comes home to the Us, they will wake up but it will be too late.

  5. deadly on Thu, 26th Apr 2018 2:36 am 

    465,000 Syrians have been killed since the war/conflict began, so the demand for oil in Syria has to be down.

    There should be more war around the world, more people will die and the demand for oil will fall quite a bit.

    Forty million people need to die in war in the next few years. All of Europe should be at war, and by the looks of it, it just might happen.

    A ten year world war could eliminate probably a billion people or even more.

    You would think the world would be tired of all of these people running around like chickens with their heads cut off. Time to get the ball rolling, initiate a kill off like in Syria.

    All of the Middle East could end up in a giant war with a hundred million dying. Iran is threatening to sink US warships, so it could happen in the blink of an eye.

    You have to think positive.

  6. Davy on Thu, 26th Apr 2018 5:39 am 

    “beingfrank, I think it is pure greed and ignorance. Over half of the population is being paid by the government to be slaves. (welfare, subsidies, overpaid government jobs with beenies, etc.)”

    Like you and the social security welfare you get and don’t deserve? Be a man and live up to all these stupid things you spout off daily and stop taking social security. It is your generation that ruined this country and world.

  7. Davy on Thu, 26th Apr 2018 6:06 am 

    Oil price is probably in a goldilocks range now. Demand is rising but for how long? Once the economy takes a turn then will it drop back? You do believe in economic cycles don’t you? I know, today we have become habituated to the new normal of central bank intervention. Maybe we hit a sweet spot for a time. Enjoy this time because there is nothing to be optimistic about longer term. Not renewables, EV’s, or other nonsense parading as a solution. Longer term fracking and unconventionals are a retirement party. This is especially true if we become much poorer in economic decline. What is after that? I am fully behind renewables and EV’s but treat them for what they are and that is an extender. I am thankful for the new oil sources as a temporary fix but still aware we are killing the climate.

    We have so many problems ahead and peak oil dynamics is still one. We may be on a peak oil dynamics plateau meaning the cornucopian technoptimist will hoot and holler how wonderful things are and how stupid doom is. I am hooting and hollering because these people’s human time frames are the next news cycle. Time is on the realist’s side. As a realist I admit my earlier extremish doom was wrong. Yet, I am likely not wrong with what is ahead longer term and time is slipping away on good fixes for those dangers. These fixes are mitigation and adaptation fixes not solution that end predicaments. There are so many things we could do now for the difficult time ahead and the narrative is in another zone and that zone is techno optimism and cornucopian economics.

  8. rockman on Thu, 26th Apr 2018 11:23 am 

    “…the market immediately obliged with traders rushing in to buy more oil, pushing Brent closer to US$75.”

    No, “traders” are not rushing in to buy MORE oil. First, these traders don’t buy oil…they buy oil futures contracts. And they even have that stat wrong: for the first 3 months of 2018 the number of WTI futures contracts bought have DECLINED 20% from 5.2 million in January to 4.2 million in March. What has happened is that the traders have done is increase the bid prices for oil futures contracts while DECREASING the number of contracts they are buying. Interesting how the talking heads focus on the bid prices for contracts and complete ignore (or get it completely ass backwards as this article does) how many bbls are being bid in those contracts.

    Not a difficult stat to find: took the Rockman about 30 seconds. Interesting to look how the contract volume has fluctuated over the last few years. Here are all those FACTS:

    https://www.theice.com/marketdata/reports/7

  9. BobInget on Fri, 27th Apr 2018 2:04 pm 

    Foreclosure?

    Venezuela June 14, 2016.
    REUTERS/IVAN ALVARADO
    (Reuters) – A grace period on Chinese loans to Venezuela has lapsed, according to two Venezuelan sources with knowledge of the matter, potentially depriving the cash-strapped OPEC nation of billions of dollars in desperately needed oil revenue this year.

    China eased the payment terms two years ago on some $19 billion in oil-for-loan deals, under which Venezuela sends shipments of crude oil and fuel to pay off debt, allowing Venezuela to make interest-only payments.

    The favorable conditions from Beijing helped President Nicolas Maduro’s socialist government weather a collapse in Venezuela’s economy, which slid into hyperinflation and a painful recession following a downturn in oil prices.

    But the grace period has lapsed without a renewal in recent weeks, according to the sources, who have been briefed by Chinese and Venezuelan officials

  10. makati1 on Sun, 29th Apr 2018 5:27 am 

    Davy, I was forced to pay into SS for my whole working career, so, sure I am going to take it all back plus interest. It is NOT welfare, but you will never see a dime of what you pay. The Us will not last until you can claim social security. lol

  11. Davy on Sun, 29th Apr 2018 6:15 am 

    “Davy, I was forced to pay into SS for my whole working career, so, sure I am going to take it all back plus interest.”

    STFU old man, you deserve nothing. It is your generation that could have saved the world but you chose greed instead. You are in denial and shucking your responsibility for all this. You blame everyone but yourself. The social Security trust fund is broke. You broke it. I do not expect to see my contribution and I am sure I contributed far more than you an uneducated construction worker. Feel blessed you get anything and when that check ends I imagine you on the street begging.

  12. makati1 on Sun, 29th Apr 2018 6:28 am 

    Wow! Third grader Davy is outdoing himself tonight. Give it up loser. There is nothing you can say that even begins to upset me. You are an insane, delusional toy to play with when I am not busy doing something important. You are just another example of why America is failing.

  13. Davy on Sun, 29th Apr 2018 6:33 am 

    Translation: stop it Davy you have me pegged…LOL. 3rd world you tell on yourself all the time because you get stuck in circular arguments. Your reasoning includes yourself but you act like it doesn’t. You can’t transcend your failures 3rd world. Be a man and own them.

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