Every winter sees a dip in demand, the trend is still up but slower.
Posted on 01/19/2016 12:29:55 PM PST by thackney
Developing countries' growth is at its lowest rate in more than a decade. A strong U.S. dollar vexes importers and pressures oil demand. And China, the long-time driver of global demand isn't living up to expectations.
All of which leaves the world awash in an oversupply of cheap oil whose prices apparently have nowhere to go but down, according to the International Energy Agency's January oil market report.
The agency revised oil demand expectations down for the fourth quarter 2015 by 300,000 barrels per day (bpd) and another 100,000 bpd for the first quarter 2016. Supply from countries not operating within the Organization of Petroleum Exporting Countries (OPEC) is now projected to decline by 400,000 bpd at the end of 2015, and by 300,000 bpd at the beginning of 2016.
"In the first two weeks of the year, both [West Texas Intermediate] and Brent settled below $30 [per] barrel and a procession of investment banks has warned that oil prices could 'fall' to $25 per barrel, $20 per barrel or, in one case, $10 per barrel," the report said.
The oil market is starting at the prospect of a third consecutive year in which supply exceeds demand by a million barrels per day, and the strain on the market will be enormous. While it's estimated that non-OPEC oil production is expected to drop by 600,000 per day, the IEA said it will be a wash because newly un-sanctioned Iranian oil will replace it. And Middle Eastern producers have a stated policy to protect their market share and let the price find itself.
But commodities markets are nothing if not a volatile art or inexact science. As analysts at Simmons & Company International note in a Tuesday report, oil was $13 per barrel in March 1999, but they had more than doubled to $30 per barrel by the following January.
What's more, analysts at Tudor Pickering Holt & Co. (TPH) noted in a daily note the IEA's assertion that global inventories stood around a whopping 1 billion barrels between 2014 and 2015.
"There is no mistaking the fact that global oil markets are oversupplied," TPH said. "But a billion barrels?"
Such a figure would mean that OPEC had built 650 million barrels - twice the pace of non-OPEC inventories, "which defies logic and certainly defies economic and logistical reality," they said in the report.
"Has the IEA thrown in the towel?," TPH asked, noting IEA's focus that BP is slashing jobs, Petrobras is cutting investments, and Saudi Arabia is reducing domestic fuel subsidies - signs of the oft-repeated "lower for longer" period of low oil prices.
"We will take the other side of that argument. No. 1, industry participants are reacting to the reality of current oil prices and are not making a call on the out years, and No. 2, this behavior is exactly why the market will rebalance itself as the upstream will continue to be capital starved [equaling] ongoing [and] accelerating declines."
Until the economy turns around and drives up demand we will be awash in oil.
Until the economy turns around and drives up demand we will be awash in oil.
Every winter sees a dip in demand, the trend is still up but slower.
I thought the Left had established that we had hit peak oil and now have to rely on solar and wind. What happened?😜
Oil is acting bottomless.
And you will stay pay 2 bucks a gallon even when oil is $20 a barrel when in the 1990’s that same price at the pump was buck and a quarter. The oil companies who do the refining are whores, which I would love to see be taken down by Uncle Sam. Oligarchs. In the height of their whoredom 2008-2014, I had oil workers renting my house here in Washington county PA. They made..hold your hat $80 per hour. These fat, barely literate, slobs with barely high school education had you and I pay for their obscene salaries and benefits. I hope those same slobs suck it on the unemployment line. FYI they left my house a mess and bailed on rent. I felt the same way about the trained chimps who worked on GM’s assembly line make $50 an hour building sh*tty American junk. American used to be a meritocracy, now its a giant Powerball, f your fellow American culture.
I have a question unrelated to the article, but you may know the answer.
How are prices for transporting oil through pipelines determined?
‘Free market’, or are the prices regulated by the government?
Yes.
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To be a common carrier pipeline, you have to be open to all to apply for your service. Common Carrier is needed if there will ever be any need to condemn right of way. Tarriffs for transportation on this system are approved by FERC. To get the permits, you have to have an open season where companies list the oil they want to move.
I only know of small private pipelines and large common carrier pipelines. There are bound to exceptions, but it is typically one of the other.
Do you think the taxes, regulations, labor and all other cost associated with turning crude oil into gasoline and transporting to the local retailer reverted to 1990s costs as well?
Thanks
Since gas prices have halved for us here, I believe it.
Heck, I just paid $1.62...not quite a buck and a quarter, but getting close.
Using your percentages...when oil was $147, it scratched the $4.00 range. So crude oil accounted for $1.84 of that price, and $2.16 are the fixed tax/refining/marketing costs.
So, if oil is now $30, it costs $0.38...added to those same fixed costs, we should expect gas to cost $2.54 right now...but in reality its solidly below $2.00 right now.
And this neglects inflation.
So I’m generally happy with the price I’m paying now...and suspicious that a premium was paid on some of the fixed costs when oil was high.
That is only the percentage at that time and at that price. It varies with both.
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