Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Energy Sector Stunning Demand and Production Trends & Developments

Commodities / Energy Resources Jan 13, 2008 - 08:17 AM GMT

By: Joseph_Dancy

Commodities

Best Financial Markets Analysis ArticleWhile we did not see triple digit crude oil prices in the futures market last year we remain optimistic the energy sector will perform well in 2008. Growing global energy demands will continue to present challenges to the market.

Several graphics we ran across last month illustrate the major issues in the energy sector. The chart at right from an article in the Financial Times illustrates that the use of fossil fuels has correlated very closely with economic growth over the last 185 years.


Global growth in 2007 is expected to reach 4.6%. Much of the growth was centered in economies that are not very energy efficient per unit of economic growth. With global economic growth continuing into 2008 we expect energy use will continue to expand at a rapid clip.

Greenhouse gas emissions also correlate closely with the demand for fossil fuels – which raises some interesting problems for those trying to limit emissions. Unless new technology is developed, reducing emissions will require the use of less fossil fuels – which will make growing the global economy much more difficult.

While global demand for fossil fuels continues to grow with economic growth, the growth in production of crude oil liquids has flattened a bit over the last few years at around 86 million barrels per day (see chart at left, courtesy of the Oil Drum).

In light of the production chart keep in mind the International Energy Agency (IEA) increased its forecast for global oil demand last month. It now forecasts total demand of 87.8 million barrels per day in 2008, mainly due to increased demand from emerging economies.

Crude oil, and natural gas liquids, play a major role in the global energy equation. The transportation sector generates most of the demand for the liquid fuel products, and global transportation needs continue to increase with living standards. Most striking is the growth of transportation demand in China – in 2007 auto sales are expected to increase 20% to 8.7 million units, a sales level that trails only the U.S.

On the production front several major oil exporters have experienced problems the last few years. First, as evidenced by the chart of Mexican production at right (from the Economist) some exporting countries are having difficulty maintaining production in light of the advancing age and decline in some of their larger fields.

Mexico , the second largest exporter of crude oil to the U.S. , has seen production plummet from 3.4 million barrels a day three years ago to 3.1 million barrels a day – with the decline possibly accelerating over the next few years as production from the world-class Cantarell field declines.

The second major problem faced by major oil exporters is the fact that many are seeing dramatic increases in internal consumption – which limits any excess oil available for export. Many exporting countries subsidize the price of gasoline or diesel fuel for political reasons, which helps fuel increases in their domestic product demand.

U.S. Crude Oil Days of Supply Graph.Meanwhile, back in the U.S. , we are seeing unusually low crude oil inventories if measured on a days of supply basis. U.S. stockpiles were at 293 million barrels late last month — down from 321 million barrels a year ago, according to the Energy Department. Some commentators have noted that on a days of supply basis we have not seen such low inventories in decades. The two year chart at right is courtesy of the Energy Information Administration (EIA).

Retail Price Graphs.

Residential heating oil prices have risen to record levels – which has created financial issues for many residents in the Eastern U.S. who heat with oil. Several states have established emergency funds to assist the poor in purchasing heating oil.

Retail Price Graphs.As an aside, surveys indicate the use of wood stoves has increased 25% in the last year in New Jersey as wood prices have remained relatively stable. Wood smoke pollutes at dozens of times the intensity of fuel oil or natural gas scientists say, with ash residue and wafted smoke particles affecting air quality and water supplies. None-the-less heating with wood is cost competitive with oil in some of these areas.

Retail Price Graphs.U.S. gasoline and diesel fuel sells at prices 30-40% above year-ago levels. Even with the higher prices gasoline use was 0.3% above year ago levels according to the most recent EIA report.

A survey of stations by MasterCard put the increased year-over-year demand in late December at 1.2%. Diesel imports to China are hitting new records it was announced last month, and are expected to accelerate into the summer months, which will not help to moderate prices. Data indicates the higher U.S. prices do not seem to be impacting demand.

Another interesting article in the Financial Times last month discussed the long-term study of global crude oil supplies and resources prepared by the U.S. Geological Society in 2000.

The study was “the most thorough and methodologically modern assessment of world crude oil and natural gas resources ever attempted. This 5-year study was undertaken ‘to provide impartial, scientifically based, societally relevant petroleum resource information essential to the economic and strategic security of the United States .'"

The U.S.G.S. study concluded that between 1996 and 2025 roughly 21 billion barrels of oil would be found in new fields every year. Actual exploration results from 1996 to 2003 indicate only 9 billion barrels per year have been found – 60% less than forecast. (Chart at left courtesy of the Financial Times).

For such a detailed and essential strategic study we find the shortfall in exploration results to date absolutely stunning.

Last, the Edison Electric Institute power generation data indicates that weekly power generation levels in the U.S. have increased roughly 3.5% over year earlier levels. Demand for power, even in a slow growing developed economy like the U.S. , continues to expand. All of which bodes well for energy sector investors in 2008 and beyond.

By Joseph Dancy,
Adjunct Professor: Oil & Gas Law, SMU School of Law
Advisor, LSGI Market Letter

http://www.lsgifund.com

Email: jdancy@REMOVEsmu.edu

Copyright © 2007 Joseph Dancy - All Rights Reserved

Joseph R. Dancy, is manager of the LSGI Technology Venture Fund LP, a private mutual fund for SEC accredited investors formed to focus on the most inefficient part of the equity market. The goal of the LSGI Fund is to utilize applied financial theory to substantially outperform all the major market indexes over time.

He is a Trustee on the Michigan Tech Foundation, and is on the Finance Committee which oversees the management of that institutions endowment funds. He is also employed as an Adjunct Professor of Law by Southern Methodist University School of Law in Dallas, Texas, teaching Oil & Gas Law, Oil & Gas Environmental Law, and Environmental Law, and coaches ice hockey in the Junior Dallas Stars organization.

He has a B.S. in Metallurgical Engineering from Michigan Technological University, a MBA from the University of Michigan, and a J.D. from Oklahoma City University School of Law. Oklahoma City University named him and his wife as Distinguished Alumni.

Joseph Dancy Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules