Peak Oil Notes – Nov 12

Oil prices continued to fall this week and are now down about $5 a barrel in the last seven days. As usual over-production and tepid demand are behind the decline. Prices fell 3 percent on Wednesday to lows last seen in August after the API released an estimate that US crude stocks increased by 6.3 million barrels last week. The EIA stocks report is delayed until Thursday this week due to the holiday. The API report was complemented by shipping data showing that 20 million barrels of Iraqi oil will be shipped to the US in November, 40 percent more than the amount sent in October. There was also a report of 40 oil tankers waiting to unload along the Texas coast.
 
This news sent New York futures to a close of $42.93 and London to a close of $45.81. With US commercial crude stocks hitting new highs as inventories have grown for six straight weeks, some analysts are talking about US oil breaking below the August low of $37.75 in the next few weeks.
 
The EIA in Washington and the IEA in Paris released reports on the short and long term prognosis for oil prices and production this week. The IEA sees the oil glut continuing until 2020 as the push for cleaner fuels and greater efficiencies in consumption offset the increased demand stemming from lower prices. The IEA now forecasts the demand for oil increasing by 1 percent in the next 4-5 years. The IEA also expects that oil prices will grow slowly, only reaching $80 a barrel by 2020. The Agency also sees OPEC increasing its share of the global oil market from 41 to 44 percent in the next 10 years as non-OPEC producers are driven out of the market. As could be expected, OPEC and industry consultants are more optimistic, seeing the markets rebalance in the next two years.
 
In its Short-Term Energy Outlook, the EIA forecast that non-OPEC production will decline by 300,000 b/d in 2016 after increasing by 1.1 million b/d in 2015. The EIA also sees US shale oil production dropping by 118,000 b/d in December.
 
Controversy at the December OPEC meeting is likely as several OPEC members are being badly hurt by the Saudi policy of pumping until the US shale oil producers drop. While this has been an effective policy and many US shale oil company defaults are expected soon, the disagreement within OPEC has spilled into the open. Oman’s oil minister is calling the Saudi policy irresponsible. As no one has much leverage over the Saudis , no changes are expected. Only the other Gulf Arabs states have the ability and resources to cut production significantly, and they are unlikely to do so.
 
In a new report, the World Meteorological Organization says that carbon dioxide levels have now passed the 400 parts per million threshold. With 2015 being on course to becoming the warmest year on record, there will be much fodder for the Paris climate negotiations next month.
 
As has become the recent norm, China’s exports in October fell for the fourth consecutive month and its industrial production for October came in at 5.6 percent year over year, less than the markets were expecting.