Peak Oil Notes – Jan 22

Oil has been trading in a relatively narrow range — $46-$49 a barrel in New York and $47-50 in London since the first week of January.  Prices are moving up or down by a dollar or two almost daily in response the to latest news. The weekly stocks’ report was delayed until Thursday due to the holiday on Monday, but anlaysts are expecting another large increase in US crude stocks.
 
The general sentiment of observers is that oil prices still have a ways to fall and that the markets are just waiting for enough bad news to accumulate before falling some more.  Arab oil ministers, however, are telling the press at the Davos confrence not to worry and that prices will rebound to “normal” levels soon.  
 
Meanwhile the IMF lowered its forecasts for the global economy, which should hold back demand for a while longer. Announcements of layoffs and cuts in capital expenditures in the oil industry continue to be released. The larger international oil companies are cutting capital spending on the order of 10 percent this year, but those involved in shale drilling are cutting back drilling rigs and other expenditures on the order of 40 percent.
 
Looking ahead to the end of this year and early 2016, some are beginning see the outlines of a major spike in prices forming. As US shale oil production is likely to decline in the second half of this year thereby easing the glut, it would not take too much of an increase in demand to drive prices higher especially if demand outruns supply.
 
China’s economic growth was reported as 7.3 percent in the fourth quarter, but growth for all of  2014 was only 7.4 percent, the lowest in 24 years. Beijing, however, is taking advantage of the low prices to import and refine record amounts of oil with the apparent demand rising to a record 10.63 million b/d in December. Some or perhaps much of this increase is being refined in new refineries and sold abroad. China is also using the low prices to fill its strategic reserve. At least one observer is forecasting that China’s demand will increase by about 5 percent or 500,000 b/d during 2015.
 
Russia’s crude production is unlikely to grow above the level obtained in 2014 as the sanctions, low prices, and a faltering economy all contribute to, at best, flat or slightly declining production.  The European Bank for Reconstruction and Development now forecasts that Moscow’s economy will decline by nearly 5 percent this year which is a large drop from the 0.2 percent forecast in September.  The EU said it has no plans to ease the sanctions on Russia as was rumored last week. Ukraine which made some military progress agains the rebels says the Mosow is sending more troops and artillery into Ukraine to halt the government’s offensive. We have seen this scenario before.
 
US natural gas futures fell as low as $2.83 per million BTU’s this week from highs last week above $3.30 on forecasts of warmer weather in the US. On Tuesday prices fell by 29 cents which was the biggest loss in 11 months.