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Page added on June 23, 2020

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Are We Nearing Peak Oil Supply?

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Are we now deep in the abyss? Up to our necks in it, if the oil price is any guide. Brent has now tested sub-U.S.$20 a barrel in this downturn and WTI sub-zero, albeit briefly and in somewhat freakish circumstances. Where are the signs of stress across the oil value chain? And what are the prospects of finding an exit route to recovery?

First, oil demand, which we think may be close to bottoming out. Decline has been sharp and deep as COVID-19 takes its toll on global economic activity. Much of the world is currently in lockdown, with more than 65 per cent of the world’s population under travel restrictions. Global air travel and car use have nosedived in many countries. The big hit has been on jet fuel demand (down 50 per cent year-on-year) and gasoline (down 25 per cent). Diesel and fuel oil – used to transport goods by truck, ship and rail – have held relatively steady.

The net effect will be April’s demand falling by an average of 15 million to 18 million barrels per day (bpd) year on year, based on the early April forecast from our Macro Oils Service. It’s a big number but may be bigger still on certain days or weeks in April and May. Some estimates have suggested declines of 20 million bpd or more.

A key question is when the global economic recovery that’s needed to kick start oil demand growth again will begin. Right now, we appear to be in limbo. India, France and the UK, among other big economies, have extended lockdowns into May. Italy, Spain, Austria and others have started to ease restrictions while several US states are considering re-opening in May. There are early signs of U.S. gasoline demand stabilising.

China is the model to watch as it emerges from lockdown. It has already started ratcheting up crude purchases in April to supply a reviving economy.

Second, inventory is building at superfast rates globally. Cushing, Oklahoma, is a microcosm of the wider picture. Oil prices in Texas have incentivized producers to send crude to the Cushing hub; weak demand from refineries in the Mid-West and Gulf Coast have kept it there. Storage tanks are filling up rapidly – the three largest weekly builds on record were in consecutive weeks from late March, based on Genscape’s proprietary twice-weekly tank monitoring.

Cushing’s tightening storage capacity played a central role in WTI’s ignominious dive into negative prices on 20 April, ahead of the May contract expiry. Traders and financial players were effectively ambushed – having to pay counterparties up to U.S.$37/bbl to roll out of their expiring May contracts and into June.

Storage globally will stay tight so long as oversupply persists. Genscape estimates Cushing‘s spare capacity of up to 15 million b/d will be full within weeks, and other landlocked hubs – the Caspian for one – are in a similar position. But in reality, producers everywhere are worried their crude won’t be able to find a home.

Third, the world is still awash with supply, which unlike demand is still close to pre-crisis levels. Low prices have killed off new investment but have not yet had much impact on production. So far, we estimate barely 1 million bpd of onstream non-OPEC production has been shut in.

These are sizeable volumes but, given the scale of the market oversupply, insignificant. We estimate over 15 million bpd of production generates negative operating cash flow, now that prices have lurched lower. As storage fills up, more wells and fields will be shut-in during the coming weeks. Curtailed volumes will quickly mount up.

What must happen for the oil market to start rebalancing and prices to recover? May is important for supply, with OPEC+ cuts taking effect and removing up to 7 million bpd from the market by the end of the month. We expect a slow return to “normal” life in H2 2020 to help demand recover, though most likely staying below pre-crisis levels.

A strong bounce in demand as the world emerges from recession will be needed to soak up the overhang of inventory, which threatens to reach record levels by summer. Nothing, however, can be taken for granted while coronavirus still poses a threat to economic – and social – activity.

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14 Comments on "Are We Nearing Peak Oil Supply?"

  1. SocialRevolutionComing on Tue, 23rd Jun 2020 2:55 pm 

    Diversity and globalism garbage from the World Economical forum. They are still not getting it. Western civilization has died and is not coming back.

    Technology can be a great ally in the drive for greater inclusion and diversity

    https://www.weforum.org/agenda/2020/06/technology-ally-inclusion-diversity-work/

  2. SocialRevolutionComing on Tue, 23rd Jun 2020 3:41 pm 

    My personality has been determined elsewhere to be linked to the lunatic Miami Beach fuck. It is disturbing this bad behavior has drifted over to the moderated side. It has also been determined I have a low IQ.

  3. Davy on Tue, 23rd Jun 2020 4:22 pm 

    My personality has been determined elsewhere to be linked to the lunatic not so REAL Green fuck. It is disturbing this bad behavior has drifted over to the moderated side. It has also been determined I have a low IQ.

  4. I AM THE MOB on Tue, 23rd Jun 2020 7:06 pm 

    Europe could face oil shortage in a decade, study warns

    The report by the Shift Project, a French climate thinktank, said the risk of reaching “peak oil supply” before major economies have transitioned to cleaner energy sources is “an additional compelling reason for designing a world without oil”.

    https://www.theguardian.com/business/2020/jun/23/europe-could-face-oil-shortage-in-a-decade-study-warns

    Damn clogg. no war needed for EU collapse part 2.

    oh well you have all those shiny solar panels and windmills to fill up your tanks!

    LOL

  5. SocialRevolutionComing on Tue, 23rd Jun 2020 7:41 pm 

    @MOB

    That would explain a lot of things

    We are seeing infrastructure project cancel. This is one example in Singapore.

    MRT network expansion delayed due to COVID-19, target of 360km by early 2030s remains: Khaw Boon Wan

    https://www.youtube.com/watch?v=HT7ENw8sfa0

    That are some infrastructure project close to where I live to seem frozen or moving forward really slowly.

    This is what I was expecting to see once we reach low energy availability (Joule).

  6. I AM THE MOB on Tue, 23rd Jun 2020 8:46 pm 

    Social & Mak1

    I have a feeling fireworks will be bursting in air next week!

    would be a good time social distance.

  7. makati1 on Tue, 23rd Jun 2020 10:13 pm 

    MOB, I am 6,000 miles away so I am fine. I watch from the cheap seats in a much better country that still has freedoms.

    Nothing will change until they start burning down the billionaire’s many mansions and beheading them and their families. I doubt it will get that far, but we can wish!

  8. makati1 on Tue, 23rd Jun 2020 10:16 pm 

    BTW: If the EU keeps kissing Amerikan ass, they will lead or follow the US into the shitter. We shall see if they are still intelligent enough to tell the US to go fuck itself or will they go down with the not so good ship USS DEBT? We shall see. Pass the popcorn.

  9. I AM THE MOB on Tue, 23rd Jun 2020 11:59 pm 

    The EU plans to ban US travelers indefinitely after haphazard COVID-19 response

    A draft list of banned countries also includes Brazil and Russia

    https://www.theverge.com/2020/6/23/21300747/european-union-eu-ban-us-travel-coronavirus-reopening-borders-draft-list

  10. SocialRevolutionComing on Wed, 24th Jun 2020 12:32 am 

    Interesting news from theverge regarding EU. I am not sure what to think of it yet. Look more like theatre. Trying to save oil by stopping plane flight and save COVID hoax propaganda from becoming irrelevant.

  11. Abraham van Helsing on Wed, 24th Jun 2020 1:18 am 

    Seems real enough:

    “Europe may issue a travel ban to Americans due to the rapid spread of the coronavirus in the US”

    https://www.businessinsider.nl/europe-travel-ban-americans-coronavirus-2020-6/

    “Report: EU May Ban Entry Of U.S. Visitors As It Prepares To Reopen Borders”

    https://www.forbes.com/sites/siladityaray/2020/06/23/report-eu-may-ban-entry-of-us-visitors-as-it-prepares-to-reopen-borders/#18194d495d2e

  12. Abraham van Helsing on Wed, 24th Jun 2020 1:24 am 

    “Europe could face oil shortage in a decade, study warns”

    I certainly hope so. In a decade we will be in relative energy safety. Perhaps at 1970s level, but somehow we’ll soldier on. Flying and private car ownership will be thing of the past, communicating for business purposes online only. Working from home or small business hotel down the road at walking distance. The renewable energy and storage industry will be thriving.

    Oil shortages: bring it on!

  13. Cloggie on Wed, 24th Jun 2020 2:52 am 

    Hat-tip to the mobster and his Guardian link!

    https://deepresource.wordpress.com/2020/06/24/europe-could-face-oil-shortage-in-a-decade-study-warns/

    “Europe Could Face Oil Shortage in a Decade, Study Warns”

  14. The Nationalist on Wed, 24th Jun 2020 10:23 am 

    The insanity of mass ‘happy motoring’ will continue for a few more years but the writing is on the wall for the literate to see!
    Lots of climate change virtue signallers have suddenly realised working at home is not a ‘future plan to save the Earth’ but makes economic sense. This change only occured because they were forced to by circumstances re covid 19!

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