Oil Prices

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My narrative for oil prices and related equities :
Oil prices will unlikely make a recovery until 2016 and beyond.
- It is unlikely that current field productions will be tapered as CAPEX had already already committed. (i.e Sand Oil projects in Canada, or offshore deepsea drilling projects)
- OPEC are not willing to give up market share by reducing supply. Supply will maintain at 30mb/d. See OPEC Press Release

Implications
- Jackup rig and FPSO producers and converters will suffer in the coming years due to a reduction in capex by offshore exploration companies. (Companies to avoid : Offshore O&G counters)
- Lower oil prices = lower gasoline bills. Gasoline prices reached US$3.70 per gallon in 2012. With prices dipping to US$2, households will have saved ~50% on bills - There will be more expenditure on consumer discretionary products (cars, luxury products and holidays)
- Low oil prices will result in political and economic unrest which cannot balance their budget using oil exports (i.e Russia). These countries can eventually be politically and economically unstable due to oil prices and ultimately, leading to a disruption of supply. However, this will take time (1-2 yrs quickest IMO)
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What to do about all that surplus oil

Steven Kopits

January 22, 2015

The world is awash in oil. A lot of oil.

Europe’s International Energy Agency (IEA) expects a surplus of 1.7 million barrels per day in the first quarter. Opec thinks it’s even more – 2.5 million bpd. That is more than a year’s worth of demand growth, which is expected to be only middling this year and up barely more than 1 million bpd, according to both Opec and the IEA.

What happens to the surplus of oil? It goes into inventory, first in onshore storage tanks, and when that is full, into floating storage such as very large crude carriers.

But how much storage do we need? Consider: when sanctions began to bite on Iran last year, the Iranians contracted perhaps 20 large tankers to absorb the excess oil. This time around we’ll need more. Much more.

By midyear, Opec and IEA forecasts suggest excess inventory on the order of 400 million barrels, enough to fill 200 supertankers. And that’s just in the first two quarters of the year.

Indeed, if such forecasts are to be believed, supply and demand will not rebalance this year at all. Production exceeds consumption for the entire year, even if the surplus is much smaller after the summer.

All that excess inventory will be out there by midyear, and it doesn’t go away. This will affect oil prices, which will have gone into a steep contango, meaning that the spot price is much lower than the futures price.

It costs $1 to $1.20 per barrel to store oil on a tanker every month, so we would expect to see that differential every month in oil futures prices.

And we do. The market is already willing to pay traders to hold oil on tankers.

But are 200 supertankers actually available for storage? The gross tonnage is there, with the global floating crude capacity in excess of 2 billion barrels. However, many of these tankers are already involved in the daily oil trade, and may not be available as storage units.

On the other hand, the futures curve is also telling us that floating storage may not be needed after the end of the year. The monthly futures price differential falls to $0.60 from early next year, not enough to contract a tanker. Why would that be?

Perhaps the market does not believe the storage will be necessary, that the excess inventory will dissipate by that time. If so, then Opec and the IEA are wrong. And we do, in fact, have some reason to think they might be.

In 1986, the price of oil collapsed just as it did in the last few months. In a short period of time, demand surged, rising by nearly 2 million bpd in a matter of months. And US conventional onshore production fell by 800,000 barrels per day during the course of the year.

If we saw a comparable response this time around, the current surplus reverts to a deficit in the second half of the year, and the floating inventories are largely consumed by early next year. In such a scenario, the need for floating storage does not extend materially into 2016.

Which story plays out matters to Opec. If it believes its own, or the IEA’s, forecast, then the world will remain awash in oil for the balance of the year. In such an event, cutting production makes little sense, particularly for Saudi Arabia, which will be asked to take the brunt of any adjustment.

While such a cut would surely raises prices and net revenues to the kingdom, a premature return to higher prices could re-start the shale business even before it winds down.

In such an event, the kingdom is offered no immediate way to re-inject its diminished volumes and a temporary cut might become permanent, something the Saudis are keen to avoid.

On the other hand, if demand is strong and supply falters, just the opposite risk threatens: Saudi Arabia waits too long to cut production, allowing too much demand to develop around cheap prices and too much production elsewhere to fall off.

If one believes – as I have consistently argued – that we are only now exiting two sequential oil shocks, and if one accepts the view that the conventional supply has peaked out, then a laissez-faire attitude from Opec could spell disaster a year out.

Other than shales, the oil supply is not healthy. A collapse of the oil price did not make finding and delivering other kinds of oil much cheaper or easier (although it has reduced the cost of services to an extent).

A delayed response by Opec could result not only in hundreds of billions in lost revenues to the group, but also in another oil shock for a global economy barely emerging from the last one. Waiting too long could prove both bad policy and bad politics.

We will know which way the scene will play out by early summer. In the meanwhile, Opec needs to stay alert.

That glut may pass sooner than we think.

Steven Kopits is the president of Princeton Energy Advisors

http://www.thenational.ae/business/energ...urplus-oil
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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http://www.iea.org/aboutus/faqs/oil/

Global daily consumption is 89 million barrels a day every year we pump and refine 32 billion barrels that's a lot of oil used for heating lighting feeding our cars. The whole world is addicted and we use more than we realize.

The current price are being manipulated I using very simple logic. In around the year 2000 I was wowed when I read the world statistics that global population had grown to reach 6 billion. Now when I check the figure is already 7.22 billion, common sense will tell you in a modern world that is growing and growing won't more competition and increasing demand for oil lead to higher prices?

If you take 32 divided by 6 = 5.3
if you take 32 divided by 7.22 = 4.4

means as the world get more and more populated if supplies don't also increase there will be less and less available and prices should go up so why is it tanked when the customers are not decreasing? Somebody has rigged this game for now. Guess who has rigged the game?
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If mathematics can solve problem, we would not have recessions. Just balance it will be enough.

The world market is too large to be manipulated. It is the law of supply and demand in play.

Growing population is one thing, consumption is another. Have you heard of this statement..."90% of the wealth is own by 10% of the population." U look at my country Indonesia. LOL. The poor and lowly educated has increases, some family has 10 children, they don't even has money to buy kerosene to cook. Those QE only benefit the rich, the poor is getting even poorer. The gap between the rich and poor has increase rather than consumption. I believe u read that too.
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(25-01-2015, 11:35 PM)sgd Wrote: http://www.iea.org/aboutus/faqs/oil/

Global daily consumption is 89 million barrels a day every year we pump and refine 32 billion barrels that's a lot of oil used for heating lighting feeding our cars. The whole world is addicted and we use more than we realize.

The current price are being manipulated I using very simple logic. In around the year 2000 I was wowed when I read the world statistics that global population had grown to reach 6 billion. Now when I check the figure is already 7.22 billion, common sense will tell you in a modern world that is growing and growing won't more competition and increasing demand for oil lead to higher prices?

If you take 32 divided by 6 = 5.3
if you take 32 divided by 7.22 = 4.4

means as the world get more and more populated if supplies don't also increase there will be less and less available and prices should go up so why is it tanked when the customers are not decreasing? Somebody has rigged this game for now. Guess who has rigged the game?

Energy sector has made a lot of tech advancement which is slowing down the increase in demand for oil and coal and maybe even reversing the demand.

1) More fuel efficient vehicles reducing consumption.

2) Biofuels are also being added to diesel and petrol. There is now unleaded with up to 15% ethanol and Biodiesel entirely made from raw or recycled food oils.


3) Renewables : For big energy consumer like USA for example, in addition to existing renewable energy like hydroelecticity, mass produced solar panels(which are very cheap now) and wind power are both increasing percentage in terms of electricity generation. So fossil fuel percentage getting less.

Very good talk by Nobel Laureate and Former US Secretary of Energy, Dr Steven Chu on the supply and demand of oil and other energy related topics like renewables and climate change..
http://www.abc.net.au/news/2014-12-10/na...hu/5958136

4) Nuclear - after all the hoohaa against nuclear power with the Japan meltdown is forgotten, nations will start utilizing this resource which also provides them with nuclear arsenal if they like. Think Japan is going to restart some of their nuclear plants too.

Population increased 6 to 7.2 is about 20%. Probably that is balanced out by advances in fuel techonology and renewables. Also a boom in population in poor african or asian nation is not likely to boost consumption, its those big consumer like americans driving their big 4000cc gas guzzlers that really use a lot. China population also been pretty stagnant recently with the 1 child policy, but their car usage is increasing fast with urbanisation.

So a lot of factors to consider, not as simple as increase in population == increase in oil demand.
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During the oil crisis in 70s, the world was consuming 60m bpd vs about 90m today, even as the largest consumer US hit peak oil. Even then in between we have oil at $10 which was partly responsible for USSR collapse. With rising China and India, the demand trend is clear.

What is not so clear is the ability of energy supply to catch up, including nuclear, bio, LNG, renewables, and now shale & oilsands. Oil surplus is a short term phenomenon that is controlled by the largest exporters ie supply, not consumers ie demand. When Ukraine is resolved, oil price will rebound. When US retreats from Japan and South Korea, North Korea will fall.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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am not trying to use maths to solve problem just trying to show more people means more demand for oil so prices should not be going down.

Fuel efficiency Technology may have advanced but not everybody can really afford that or wants to change. Not everybody upgrade their vehicles or upgrade their power infrastructure. Third world countries mire by corruption or whatever their infrastructure still very backward. Few years back blackout in India, was reported their power grid infrastructure is a bad joke from british era still in use until now.

japanese generally scrap their vehicles after 5-6 years. Still in very good condition maybe those vehicles even get re-exported here and become taxis on our roads So we get these "hand me downs" use for 10 years then service it and resell to others like vietnam or china or maybe even afro countries who use for maybe another 10 or more years, it still can run but by then not so fuel efficient anymore and gas guzzlers.

Look at tuk tuks or pedicabs fuel guzzlers from 60's era technology still very much in use around this region.
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(26-01-2015, 12:24 AM)BlueKelah Wrote:
(25-01-2015, 11:35 PM)sgd Wrote: http://www.iea.org/aboutus/faqs/oil/

Global daily consumption is 89 million barrels a day every year we pump and refine 32 billion barrels that's a lot of oil used for heating lighting feeding our cars. The whole world is addicted and we use more than we realize.

The current price are being manipulated I using very simple logic. In around the year 2000 I was wowed when I read the world statistics that global population had grown to reach 6 billion. Now when I check the figure is already 7.22 billion, common sense will tell you in a modern world that is growing and growing won't more competition and increasing demand for oil lead to higher prices?

If you take 32 divided by 6 = 5.3
if you take 32 divided by 7.22 = 4.4

means as the world get more and more populated if supplies don't also increase there will be less and less available and prices should go up so why is it tanked when the customers are not decreasing? Somebody has rigged this game for now. Guess who has rigged the game?

Energy sector has made a lot of tech advancement which is slowing down the increase in demand for oil and coal and maybe even reversing the demand.

1) More fuel efficient vehicles reducing consumption.

2) Biofuels are also being added to diesel and petrol. There is now unleaded with up to 15% ethanol and Biodiesel entirely made from raw or recycled food oils.


3) Renewables : For big energy consumer like USA for example, in addition to existing renewable energy like hydroelecticity, mass produced solar panels(which are very cheap now) and wind power are both increasing percentage in terms of electricity generation. So fossil fuel percentage getting less.

Very good talk by Nobel Laureate and Former US Secretary of Energy, Dr Steven Chu on the supply and demand of oil and other energy related topics like renewables and climate change..
http://www.abc.net.au/news/2014-12-10/na...hu/5958136

4) Nuclear - after all the hoohaa against nuclear power with the Japan meltdown is forgotten, nations will start utilizing this resource which also provides them with nuclear arsenal if they like. Think Japan is going to restart some of their nuclear plants too.

Population increased 6 to 7.2 is about 20%. Probably that is balanced out by advances in fuel techonology and renewables. Also a boom in population in poor african or asian nation is not likely to boost consumption, its those big consumer like americans driving their big 4000cc gas guzzlers that really use a lot. China population also been pretty stagnant recently with the 1 child policy, but their car usage is increasing fast with urbanisation.

So a lot of factors to consider, not as simple as increase in population == increase in oil demand.

http://www.indexmundi.com/energy.aspx

Look at the world oil consumption chart and table - what could better explain the increase in consumption other than the increase in world population, over the years?
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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one way to forecast oil price is too look at its 5-year forward price as it is much less influenced by speculation and more representative of true commercial needs.
Right now the forward price is around 80.

Jim O'neill predicted by end of this year oil price would end higher than it began this year.
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(26-01-2015, 12:17 AM)yewkim Wrote: If mathematics can solve problem, we would not have recessions. Just balance it will be enough.

The world market is too large to be manipulated. It is the law of supply and demand in play.

Growing population is one thing, consumption is another. Have you heard of this statement..."90% of the wealth is own by 10% of the population." U look at my country Indonesia. LOL. The poor and lowly educated has increases, some family has 10 children, they don't even has money to buy kerosene to cook. Those QE only benefit the rich, the poor is getting even poorer. The gap between the rich and poor has increase rather than consumption. I believe u read that too.

Indonesia Crude Oil Production and Consumption by Year
http://www.indexmundi.com/energy.aspx?country=id

Again, what could better explain the increase in oil consumption in Indonesia over the years - other than increase in population ?
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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