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Oil Supply and Demand Forecasting

A fascinating presentation by Steven Kopits, Managing Director, Douglas-Westwood, for the The Center on Global Energy Policy, recorded February 11, 2014. Kopits examines oil supply and demand modelling, peak oil, the link between oil and the economy, and capex spending in the oil industry.

17 Comments on "Oil Supply and Demand Forecasting"

  1. clif14 on Tue, 25th Feb 2014 10:52 pm 

    Long time lurker at TOD, migrated to this site. First time to post.
    This video is full of graphs supporting his info. Excellent discussion on supply/demand constraints on oil production. He also examined the recent oil majors’ decision(s) to sell assets. Excellent presentation.

  2. bobinget on Wed, 26th Feb 2014 1:01 am 

    Ditto. One everyone should view at least once.

  3. Joe D. on Wed, 26th Feb 2014 2:24 am 

    Steven Kopits presentation is a MUST WATCH!

  4. ghung on Wed, 26th Feb 2014 4:20 am 

    Throw in a little Westexas ELM; OPEC producers keeping more of their production for domestic use, and things look pretty dicey in the next few years. It doesn’t matter so much to the rest of us how much they produce, only how much they export. With the majors circling their wagons, looks like an upstream crash could be in the cards.

    Steve’s “Triangle of Doom” playing out…

  5. Northwest Resident on Wed, 26th Feb 2014 6:27 am 

    Gail Tverberg at Our Finite World posted an excellent article that summarizes Kopits’ presentation, and adds plenty of her own insightful perspective:

    Beginning of the End? Oil Companies Cut Back on Spending

  6. Deep on Wed, 26th Feb 2014 9:27 am 

    Mobility decline assessment is probably wrong.True mobility by car is in decline but are people travelling less? What r the figures of Public transport usage ?Also to travel by bus with built in wi fi is far better option than commuting by car .

  7. Ming on Wed, 26th Feb 2014 10:00 am 

    Yes, if one just has 1 hour to understand this issue, that hour should be spent with this presentation.
    It is extremely good.

  8. rockman on Wed, 26th Feb 2014 12:50 pm 

    ghung – “It doesn’t matter so much to the rest of us how much they produce, only how much they export.” An excellent point I’ve been debating with some of our cohorts. My argument is that those refinery JV’s that require oil exporters, like the KSA, to keep that feedstock in country has a similar effect as ELM. When the Chinese/KSA Red Sea refinery goes on line the global oil market will lose access to about 150 million bo/year for perhaps the next 30+ years/ Add it up and that’s over 4 BILLION bo lost to the market place from just that one JV. And then consider the growing shift of KSA oil sales to China via long term contracts as well as trade treaties. It’s not difficult that between ELM, and other dynamics very little Saudi oil will be available to many of the countries currently importing from them even if KSA production were to not decline.

    So as you correctly point out IMHO how much oil the KSA produces is relatively unimportant. But how much is available on the open market is critical.

  9. Davy, Hermann, MO on Wed, 26th Feb 2014 12:59 pm 

    This issue is a very important subject to me in regards to the systematic risk to our all-important financial system that supports BAU. All other efforts at solving the many issues facing our global community rely on a stable BAU environment. Good or bad a healthy functioning BAU is required for us to mitigate and adjust to the multiple predicaments and problems we are facing as a global society. A drop in car usage may sound good but it is in reality a drop in economic activity which has a knock on effect to the global economy. When consumption falls then the financial system corrects. This effects confidence and liquidity which knocks on the size of the gross capex to society. Capex drop will affect all other large global effort at growth and problem solving. I feel public transport options are not enough to compensate for the drop in car usage. I believe the drop in car usage is not enough at this point to cause a dramatic correction but it will lead to one if we have a stronger shock with higher fuel prices or supply constraints. Watch this car miles driven variable in the future as an indicator of a drop in economic activity. There was allot of low hanging fruit already picked in efficiency but eventually you cut into productivity with diminishing returns to efficiency and alternatives.

  10. ghung on Wed, 26th Feb 2014 2:12 pm 

    @Rockman – It’s not just KSA either. The Chinese are slated to invest nearly $30 billion in the Venezuela oil patch, while Venezuela exports to the US are at or near a 28 year low. West African exports are generally iffy, and as Kopits mentions, Canada isn’t a swing producer, unable to ramp up quickly to supply growth the way KSA can. Methinks the US is in a rather surreal zone when it comes to future oil availability, and folks here will be wondering what happened to their new ‘oil revolution’.

  11. ghung on Wed, 26th Feb 2014 3:02 pm 

    ….and an interesting note from Gail in the comment section of her blog:

    :One ironic thing is that Steve Kopits was laid off from Douglas Westwood, not long after he gave his presentation. His office is being closed, for lack of business. I suppose oil company cutbacks hit all areas, including consulting services.”

  12. bobinget on Wed, 26th Feb 2014 4:40 pm 

    One salient piece overlooked so far in comments might be S. Kopits understanding it will take $200 oil to regain vigorous exploration activities.

    IMO, retrenchment is not all about dividends, quarterly p/l statements.
    If almost every major cuts back, because crude is no so profitable at $100, it once again proves not complicity as some might imply to drive prices higher,
    but there’s simply no profit in replacing legacy oil.
    How long will shareholders, dividends pocketed, stand by as proven reserves no so slowly sink with sunsets?

    WHEN crude moves higher, oil & gas service companies
    will once again suck up profits. There is no way vastly improved lifting technology can keep up with Asian demand.

    Look to see where CAPEX is headed. One word: ‘Shale’.
    The biggest play currently is in Argentina. Even the UK
    is desperate to play catch-up, harvesting natural gas. GB’s conservative leaders know but won’t publicly
    admit, Climate Change is placing extra ordinary demands on fossil fuels. Two hundred years of colder, wetter winters hotter, dryer summers need preparation.

    Because tight oil can be ramped far quicker than Oil Sands or Ultra Deep-sea. While we know for certain we can harvest oil sands and ultra deep ocean crude, prices, risks, are simply too high at this $103 dollar stage.

    Obviously, ‘conventional’, legacy oil sands and deep sea reserves will become far more profitable as time goes forward.

    First we need to acknowledge Peak-Oil, Climate Change, Agriculture, should more often be linked in single sentences.

  13. Keith_McClary on Wed, 26th Feb 2014 5:57 pm 

    60 page PDF slideshow (4.4MB):

  14. GregT on Thu, 27th Feb 2014 1:08 am 


    Thanks for the link, I was having trouble reading some of the charts in the presentation.


    Excuse my ignorance, but what is ELM?

  15. Nony on Fri, 28th Feb 2014 1:18 am 

    I had read through the presentation earlier. Finally watched presentation also. Probably good to do both. He has a lot of good verbal explanations. But then the slides are very text heavy, so you can’t read them while he talks (and miss that if you just watch talk). It’s better stuff than what I criticized at first. I could have a fun time chatting with that dude and it would be much more than typical blog chatter here.

    That said some crits:

    1. Still don’t like the supply versus demand quandary. I guess lazy forecasters may do one or the other. But good commodity analyzers (chemicals, steel) draw both a demand and supply curve and look at the intersection, just like you learned in freshman econ. And then they try to analyze how each CURVE will change in the future, with the new intersection being the new price. Not only is it more correct in economics, but just forcing yourself to think about the curves, the segments within them, etc. is powerful to help you think about industry evolution.

    2. The stuff about GDP feedback was interesting. That said, I think this feedback is implicitly included in a medium-term demand model (or maybe can be externally layered on).

    3. I would have liked to see someone ask him about what he thinks the futures market thinks. Obviously at some level he just thinks he’s right and the market wrong, but like to hear him expound. Maybe asking him what he thinks the market is pricing in (lower demand, higher supply?)

    4. The majors stuff was interesting, but again I wonder how much you can generalize that to the industry overall. After all 3 m bpd has been added in the US, essentially from non-majors. How big are the majors overall? Sure they’re shrinking, but there is some replacement happening. Dinosaurs dying, mammals replacing.

    5. OPEC view: I’m very curious on how we could figure out if OPEC is exerting market power or not. In a world where they are not (all out production), then the chance of a price crash is low. In a world where they are, then maybe we could go back to 40 (with enough of a marginal “wedge” to drive cheating and cartel collapse). Like what went down from 70s to 80s. Again, I don’t know the answer…just curious of how to address it.

  16. Nony on Fri, 28th Feb 2014 1:22 am 

    I’m absolutely unconcerned about KSA refineries. There is global trade in the finished products that come out of refineries. It only matters to refiners this sort of thing…not to end customers. And for that matter, I’m not too impressed with Saudi ability to run industrial processes.

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