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Page added on July 30, 2017

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Peak Oil Demand in 10 Years?

Consumption

Venezuela is sliding closer and closer toward the brink, and things look as if they’ll get worse, unfortunately, before they improve.

A country that boasts the largest proven oilfield in the world should not be facing such dire food and medicine shortages, not to mention rampant protests and violence in the streets. But that’s what happens when far-left, authoritarian socialist regimes threaten to dissolve economic freedom, the rule of law and democracy itself.

As you might have heard, Venezuelans will be participating in an election this Sunday that could permanently amend the country’s constitution for the worse. Depending on the outcome, President Nicolas Maduro is poised to become the world’s next absolute dictator.

draghi ending ecb stimulus not there yet

On Wednesday, the U.S. Treasury Department issued economic sanctions on 13 current and former Venezuela government officials in an effort to encourage Maduro to drop the election, which—let’s be honest—is likely rigged in his favor. According to Transparency International, Venezuela is among the most corrupt countries on the planet, ranking 166 out of 176 in 2016.

So why am I telling you this? Again, Venezuela sits atop the world’s largest proven oil patch. Crude accounts for roughly 95 percent of its export earnings. If Maduro does not relent, the U.S. could very possibly target the country’s oil industry next.

As Evercore ISI put it this week, the Treasury Department’s decision is “the first step toward comprehensive sectoral sanctions, including crude oil imports into the U.S.”

This would be phenomenally disruptive to Venezuela’s already fragile economy. Right now, the U.S. is the country’s top cash-generating market. Unlike most other markets, the U.S. pays its oil import invoices in full and on time. Venezuela could always boost exports to other existing clients, but the cash would dry up.

To be fair, such a move wouldn’t be exactly painless for the U.S. either. Venezuela is currently its third-largest supplier of crude, following Canada and Saudi Arabia. Several large American producers, including Chevron, Halliburton and Schlumberger, have joint-venture contracts with Petroleos de Venezuela (PDVSA), the South American country’s state-run oil company. And a number of oil refineries in the U.S. are equipped specifically to handle Venezuela’s notoriously extra-heavy crude.

top 5 crude suppliers to the U.S.
click to enlarge

Speaking to MarketWatch this week, Oil Price Information Service energy analyst Tom Kloza said the “possibility of chaos” in Venezuela could adequately spur an oil rally that the most recent global production cuts have failed to achieve. Despite the Organization of Petroleum Exporting Countries’ (OPEC) December agreement to trim output in an effort lift prices, crude fell more than 14 percent in the first six months of 2017 and is currently underperforming its price action of the past four years.

Venezuela’s vote this weekend, followed closely by fresh U.S. Treasury Department sanctions, could be the “only true element that would change the dynamic for crude,” Kloza says.

Crude Gains on Inventory Draw

West Texas Intermediate (WTI) crude climbed to a nearly two-month high this week—but not entirely in response to the upcoming Venezuela vote. The U.S. Energy Information Administration (EIA) reported that crude oil inventories, not including those in the Strategic Petroleum Reserve (SPR), sharply fell 7.2 million barrels in the week ended July 21. Stocks now stand at slightly more than 483 million barrels. Although still historically high, inventories have now decreased for four straight weeks.

U.S. Crude stocks see big draw, sending oil prices higher
click to enlarge

On Tuesday, oil jumped 3.34 percent, its biggest one-day gain since November 2016. And with only one more trading day left in July, the commodity is on track to have its first positive month since February.

Also supporting oil right now is speculation that domestic producers could soon start slashing capital budgets after months of depressed prices. Anadarko Petroleum made headlines this week after becoming the first major U.S. producer to announce cuts. The Texas-based company plans to trim $300 million from its 2017 budget.

But don’t expect domestic output to slacken anytime soon. In its Short-Term Energy Outlook, released this week, the EIA forecasts crude production to reach a record high of 9.9 million barrels a day on average in 2018. That would push it over the previous record of 9.6 million barrels a day, set way back in 1970.

EIA forecasts record U.S. oil production in 2018
click to enlarge

Not everyone agrees with this assessment. In a report this week, Capital Economics writes that “after more than a year of steady gains, the number of active drilling rigs will decline in the second half of the year. Accordingly, while mining structures investment probably posted another rise in the second quarter, these gains won’t be repeated in the second half of the year.”

Active Rigs and Mining Structures Investment Set to Fall
click to enlarge

It’s important to remember, though, that a common theme among American frackers is that operations have become exceedingly more efficient than ever before. When oil prices collapsed more than two years ago and rigs were mothballed, output remained strong. So it’s possible that even with fewer rigs actively pumping crude, and less capital going into mining structures, we could still see domestic production reach 10 million barrels a day by next year.

OPEC Compliance at Six-Month Low

Obstructing price appreciation right now is news that a number of OPEC countries are not complying with production guidance laid out earlier in the year. The compliance rate fell from 95 percent in May to a six-month low of 78 percent in June, with monthly output from Algeria, Ecuador, Gabon, Iraq, the United Arab Emirates and Venezuela totaling more than what should be allowed.

Meanwhile, Libya and Nigeria—which are exempt from the OPEC agreement because recent political instability in those countries knocked out months’ worth of production—dramatically increased output that reportedly has Saudi Arabia worried.

Peak Oil Demand in 10 Years?

Looking ahead on the demand side, we could see global oil consumption peak as soon as the late 2020s or early 2030s.

draghi ending ecb stimulus not there yet

That’s according to Ben van Beurden, CEO of Royal Dutch Shell. Speaking to CNBC yesterday, van Beurden cited growth in electric vehicle sales as well as countries switching from fossil fuels to renewables as major catalysts that would trigger peak demand much sooner than previous estimates. Back in November, the International Energy Agency (IEA) said it didn’t expect demand to peak before 2040.

But things are changing more rapidly every day. Last month, Volkswagen—the world’s number one manufacturer by sales—announced it would cease selling fossil fuel-burning automobiles by 2020. Both France and the United Kingdom recently said gas and diesel cars would be banned by 2040. India, the fastest growing automobile market, set a similar target for 2030.

Even when oil demand peaks—whether in 2030 or 2040—it won’t “go out of fashion overnight,” van Beurden said. Planes, ships and heavy trucks will continue using fossil fuels all around the globe, and smaller emerging markets will not be able to make the transition to renewables so easily as larger economies such as Western Europe, China and India.

“Supply will shrink faster than demand can shrink,” he explained, “and therefore, working on oil and gas projects will remain relevant for many decades to come.”

Shell reported knockout second-quarter earnings as cash generation rose sharply. The Anglo-Dutch producer’s earnings attributable to shareholders rose to $1.9 billion in the June quarter, a whopping 703 percent increase over the same period last year. Free cash flow stood at an incredible $12.1 billion, up from negative $3.1 billion during the same quarter in 2016.

With the price of oil having averaged $45 a barrel for the past two years, Shell will remain “very disciplined” going forward, van Beurden said.

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13 Comments on "Peak Oil Demand in 10 Years?"

  1. Cloggie on Sun, 30th Jul 2017 10:38 am 

    In a couple of years the installation of yet another wind park will generate as much interest as it did in the past when some oil major discovered a few hundred million barrel somewhere.

    Not much interest.

  2. boat on Sun, 30th Jul 2017 11:28 am 

    There will be a huge oil industry decades after peak oil. How fast that market dissipates is a direct correlation to how fast renewables can drop the price of a btu along with the improved efficiency of product components.
    Changing regulations will also impact the cost of FF as climate change effects become more expensive.
    A speculation might be renewables will be thriving in 20 years while FF enter a period of big hits in demand.

  3. rockman on Sun, 30th Jul 2017 11:55 am 

    “… while FF enter a period of big hits in demand.” Very likely given oil demand has periodically taken “big hits” during the last 100+ years.

  4. boat on Sun, 30th Jul 2017 12:15 pm 

    rock,

    Unlike the pervious big hits these are likely to be more permament.

  5. Lucifer on Sun, 30th Jul 2017 4:12 pm 

    Boat, you have got Rockman rocking, lol. But you are wrong on renewables thriving in 20 years.

  6. bobinget on Sun, 30th Jul 2017 5:45 pm 

    East Coast refineries will need to export diesel, gasoline to Europe starting Monday.

    THE HAGUE: The British-Dutch oil giant Shell said it was temporarily shutting down Europe’s biggest refinery after a pre-dawn fire broke out at a power station on the vast site on Sunday (Jul 30).
    Flames billowed into the sky over the port of Rotterdam after the blaze erupted at a high-voltage power station at the Shell Pernis refinery.
    Firefighters brought the fire under control by around 6am (0400 GMT).
    “Shell is in the process of shutting down all the units at the site,” a Shell spokesman told AFP. The units are all interconnected and “several of them are out of service due to the power outage caused by the fire,” he said.
    It takes “hours, or even several days” each time that operations are closed down or restarted, he said.
    Shell did not confirm media reports that the fire may have been caused by a short circuit. Instead the company said it would “wait to know more about the circumstances of the incident.

    Read more at http://www.channelnewsasia.com/news/business/shell-shutters-europe-s-largest-refinery-after-fire-9077390

  7. bobinget on Sun, 30th Jul 2017 6:10 pm 

    Arabs dictate, Qatar: First surrender, THEN talk.

    July 30 (UPI) — The four Arab nations boycotting Qatar reiterated 13 demands on fighting terrorism to be met before talks to end their boycott can commence.

    The foreign ministers from Saudi Arabia, the United Arab Emirates, Bahrain and Egypt suggested they would be “ready for dialogue” if Qatar commits to curbing terrorism. Also, they want news giant Al-Jazeera closed and ties with Iran reduced.

    “The four countries are ready for dialogue with Qatar with the condition that it announces its sincere willingness to stop funding terrorism and extremism, and its commitment to not interfere in other countries’ foreign affairs and respond to the 13 demands,” Bahrain’s Foreign Minister Sheikh Khalid bin Ahmed al-Khalifa said after meeting his counterparts in Manama, Bahrain’s capital.

    Saudi Foreign Minister Adel al-Jubeir said “these demands are not negotiable. We cannot shrink [the list] down.”

    Qatar, which strongly denied the allegations, rejected the conditions for the lifting the sanctions.

    Qatar’s lawyers called the tactics “reminiscent of the extreme and punitive conduct of ‘bully’ states that have historically resulted in war.”

    On June 5, the four nations broke off diplomatic relations with Qatar. Saudi Arabia closed its land border with Qatar, and all four countries cut air and sea links with Doha. Also, Qatari expatriates were expelled from their countries.

    Mahjoob Zweiri, professor at Qatar university, told Al Jazeera the two sides “haven’t moved anywhere.”(snip)

    The mighty Arab Speaks:
    It seems clear, we do the boycotting, YOU continue suppling us with gas. Oh yeah, come to the hajj.
    Just fly an extra few thousand miles to do so.

    I bet KSA rakes in millions every year from hosting
    Hajj. What if Iran, Qatar, Jordan, Turkish, Iraqi Muslims put off once in lifetime Hajj visit a year.

  8. bobinget on Sun, 30th Jul 2017 6:30 pm 

    http://gulfnews.com/business/sectors/energy/fire-forces-shutdown-of-europe-s-biggest-oil-refinery-1.2066632

    The huge European refinery fire just reported will
    call on US refineries to step in with gasoline and diesel to replenish Europe’s taxed storage.
    Translated: There goes that mythical ‘glut’.

    This on top of Venezuelan situation should push CL
    well over $51 on Monday

  9. boat on Sun, 30th Jul 2017 10:20 pm 

    bob,

    The glut is in crude, not finished petroleum products. Amazing you don’t understand that.

  10. Cloggie on Mon, 31st Jul 2017 5:52 am 

    Year-to-year 54% increase sales e-vehicles in Europe:

    https://cleantechnica.com/2017/07/30/europe-electric-car-sales-54/

    #1 by far: Renault Zoe:

    https://deepresource.wordpress.com/2017/05/22/wind-power-and-electric-vehicles/

    EU was already past peak fossil as per 1990:

    http://edgar.jrc.ec.europa.eu/img/part/co2_report_2016_009g_muc16.png

    The real stinker is China: more than EU and US combined.

    The attitude of Trump about “bad deals” is understandable, but nevertheless short-sighted. We should run into renewables for the terrific business opportunities that this field provides: new energy base + completely renewed transport sector. We are talking trillions here.

    First come, first served.

    Mikhail Gorbachev: “He who comes too late is punished by life”.

  11. jman on Mon, 31st Jul 2017 6:22 am 

    Boat,

    What makes finished petroleum products? Amazing you don’t understand that.

  12. newfie on Thu, 3rd Aug 2017 8:15 pm 

    “Supply will shrink faster than demand can shrink.”
    That is called Peak Oil.

  13. boat on Thu, 3rd Aug 2017 8:29 pm 

    jman,

    The glut still lives even after OPEC cuts of 1.8 mbpd. Yea the stuff finished petroleum products are made from. Idiot.

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