Tag: Global Oil Demand

World Oil Supply And Price Outlook, July 2021

Posted on by Robert Boslego

The Energy Information Administration released its Short-Term Energy Outlook for July, and it shows that OECD oil inventories likely peaked at 3.207 billion in July 2020. In June 2021, it estimated stocks fell by 12 million barrels to end at 2.864 billion, 337 million barrels lower than a year ago.

The EIA estimated global oil production at 96.75 million barrels per day (mmbd) for June, compared to global oil consumption of 97.90 mmbd. That implies an undersupply of 1.15 mmb/d, or 34 million barrels for the month. Given the decrease in OECD stocks, non-OECD stocks are implied to have increased by 20 million barrels.

For 2021, OECD inventories are now projected to draw by net 194 million barrels to 2.832 billion. For 2022 it forecasts that stocks will build by 76 million barrels to end the year at 2.908 billion.

OECD Global Oil Inventories

The EIA forecast does not incorporate the OPEC+ plan to increase production by 400,000 b/d each month from August to December. The plan was not formally put into place because of an objection by the UAE to obtain a higher quota. All OPEC decisions must be unanimous. However, UAE's energy ministry said on July 14th that there had been significant progress in resolving its standoff with OPEC+ and that a compromise deal is being discussed that will raise the UAE's crude production quota to 3.65 million bpd from about 3.17 mmbd currently.

The current “reference production” and adjustments levels are detailed in the table below. Continue reading "World Oil Supply And Price Outlook, July 2021" →

Oil Market Readies For Iran Sanction Waivers, Round 2

Posted on by Robert Boslego

Crude oil production in Iran had reached 3.84 million barrels per day (mmbd) in the period following the lifting of sanctions by the Obama Administration. But following President Trump’s announcement in May 2018 that the U.S. would re-impose sanctions in November, demand for Iranian crude dropped to 3.7 mmbd by October. In November, the Trump Administration allowed limited waivers to the sanctions to eight countries, but Iranian production dropped by another 700,000 b/d by March.

The waivers were designed to terminate on May 2nd, but Secretary of State Mike Pompeo announced April 22nd that the waivers would not be extended. "This decision is intended to bring Iran's oil exports to zero, denying the regime its principal source of revenue," the White House said in a statement.

According to the International Energy Agency (IEA), Iran’s exports of crude and condensates are running about 1.1 mmbd in April. President Trump tweeted Saudi Arabia and others in OPEC had assured him that they would make up the impact of any decline in Iran’s exports:

Iran

In the months leading up to last November, KSA had increased its output to 11.1 mmbd, at the request of the White House, to ensure that oil supplies would be adequate once the Iranian sanctions took effect in November. But Trump’s granting of the waivers immediately created an oversupply in the global oil market, and oil prices collapsed as a result. Continue reading "Oil Market Readies For Iran Sanction Waivers, Round 2" →

Saudi Arabia's "Mini Oil Embargo" May Backfire

Posted on by Robert Boslego

On October 20, 1973, Saudi King Faisal announced KSA was joining in an oil embargo against the United States and Europe in favor of the Arab position in the Yom Kippur War. In an interview with international media, King Faisal said:

“America's complete Israeli support against the Arabs makes it extremely difficult for us to continue to supply the United States with oil, or even remain friends with the United States."

The price of oil quadrupled in short order, a few months. The oil shortage in America was managed by gasoline rationing by President Nixon. Drivers could buy gasoline on “odd” or “even” days, depending on the last digit of their license plate. There was also a maximum dollar amount set on purchases of $10. Motorists often had to wait in line for an hour to buy gas.

The economic impact on the U.S. and the world economy was devasting. It caused a massive recession in 1974-75, even though the embargo was lifted in March 1974. The Saudis and other OPEC producers learned how “inelastic” (i.e., non-responsive to price) gasoline demand was and their ability to stuff their coffers even with small cuts to production. Continue reading "Saudi Arabia's "Mini Oil Embargo" May Backfire" →

Saudi Crown Prince Claims Lost Iranian Barrels Will Be Offset

Posted on by Robert Boslego

Back in 1973, Saudi Arabia took a very aggressive move against the U.S. by starting the Arab oil embargo:

Saudi Crown Prince

But the Trump Administration has taken a strong position against Iran, Saudi Arabia’s nemesis. KSA also depends on the U.S. for its protection as well as its economic development. The current relationship between Washington and Riyadh could not be better:

"I love working with him (Trump)." - Crown Prince Mohammed bin Salman, October 5, 2018

Saudi Crown Prince
Photo Courtesy Of AFP)

Prior to announcing the U.S. pull-out of the Iranian nuclear deal in May, the White House had secured assurances from producers, namely Saudi Arabia, that any disruptions in Iran’s exports would be offset by higher production by countries with spare capacity, according to Treasury Secretary Mnuchin. The Saudi energy minister confirmed it. Continue reading "Saudi Crown Prince Claims Lost Iranian Barrels Will Be Offset" →

Oil Market Scenarios And Risks: 4Q18

Posted on by Robert Boslego

Major uncertainties loom toward the end of the year when sanctions are currently scheduled to go into effect by the U.S. regarding Iran. The range of potential outcomes is large, as it is possible that a deal may be reached with Iran which avoids sanctions (Iranian President Hassan Rouhani in a speech Sunday did not rule out peace between the U.S. and Iran), or Iran increases its exports to China and India, offsetting decreases to European countries. But the base case should assume some loss, on the order of 600,000 b/d.

President Trump has a few policy options to manage the size of the loss:

  • Pressuring the Saudis and other Gulf producers to maximize their output
  • Granting waivers so that more exports can flow
  • Ordering drawdowns of the Strategic Petroleum Reserve, potentially coordinated with the International Energy Agency

But Iran’s production is not the only risk. Venezuela’s production is in a meltdown and production may drop to just one million barrels per day by the end of the year. Whether it could stabilize at that level is an open question and is sure to provide a risk premium to oil futures prices.

I created three scenarios to develop a range of likely global inventory levels and future oil prices. The base case “demand for OPEC crude” is from OPEC’s own July Monthly Oil Market Report. In all three scenarios, I assume production in Venezuela drops to one million barrels per day (mmbd) by 1Q19 and stabilizes there. I also assume that Saudi production rises to 11 mmbd and remains at that level and production increases in the UAE and Kuwait. Continue reading "Oil Market Scenarios And Risks: 4Q18" →