Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Gold Exodus to Reverse - 22nd Sep 18
Bitcoin Trader SCAM WARNING - Peter Jones, Dragons Den Fake Facebook Ads - 22nd Sep 18
China Is Building the World’s Largest Innovation Economy - 21st Sep 18
How Can New Companies Succeed in the Overcrowded Online Gambling Market? - 21st Sep 18
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

Crude Oil on the Slippery Slope

Commodities / Crude Oil Jul 13, 2012 - 02:24 AM GMT

By: Andrew_McKillop

Commodities

Best Financial Markets Analysis ArticleOPEC NEWS IS NO NEWS
Oil output by the producer states in the cartel is falling, with the largest loss by Iran, for highly obvious reasons - the western embargo - but not at all so obvious, Iran's large cutback in crude oil exports, due to the embargo, will be joined by a significant fall in Iranian imports of refined products, especially middle distillates and gasoline. For the more-than-somewhat oversupplied and nearby European market for these products, the price impact can only be downward, with the leading indicator being stocks and refinery runs in Europe. Refinery runs, already low, and stocks which are high, will likely go further down and up with European refiners trying to recoup some of their losses by exporting more gasoline to the US, impacting US crude demand for refining.


Industry data shows that oil production by Iran fell below 3 million barrels a day in the month of June but that has only one real impact: OPEC quota overruns will be a little less extreme than they were, as the cartel still produces far more than the "theoretical limit" set by present quotas for the 11 member states who say they abide by them, of around 30 million barrels a day (Mbd). The quota ceiling has featured in OPEC meetings for month after month. Total output, today, is off the highs of about 31.5 Mbd in March, but still well above 30 Mbd. The world's No 1 NOPEC producer, Russia, is producing at record rates not seen since Soviet heydays of the early 1980s.

Put another way, Iran's significant fall in total export supply to European states, the US, Japan and South Korea, but not to India and probably also not China, may help OPEC maintain a semblance of quota discipline, but real world supply is still chasing global oil demand. Down.

The two key figures are total world demand, and the growth rate of world demand: unusually, both the cartel and the OECD's energy watchdog agency the IEA are saying nearly the same things. Both are forecasting that world demand in 2012 may struggle to attain a year-round day average of 89.5 Mbd. Three months ago, it was possible to scenarize and forecast sufficient demand recovery for world demand to average 90 Mbd through 2012, in turn implying a growth of demand on a 12-month base, from late 2011 to late 2012 of close to or more than 1 Mbd.

DEMAND GROWTH: WHAT DEMAND GROWTH?
Trailing the IEA and its constant cuts in forward estimates for global demand growth, until recent weeks, OPEC is now forecasting that world oil demand growth will fall to 0.8 Mbd for the full year, but even this now looks like pious hope. Inside the cartel, it looks different: cutting back the growth number could put more pressure on producers to trim their production a little nearer their quota volumes. Quotas themselves may however and in fact soon need cutting, more especially when we take OPEC's most recent forecast that for calendar year 2013 world oil demand will average only 89.5 Mbd.

This means that through 2012-2013 we would have a perfectly flat trend line for demand, with a few ripples for winter heating and the summer motoring and air travel season in the northern hemisphere, eaten away by falling demand by industry worldwide. For OPEC the polite way to talk about this outlook is “considerable uncertainties.” These are likely to come in jumbo doses from Asia: Chinese and Indian oil demand growth is certainly not what it used to be, and coming news may be really bad for the oil boomers betting for higher prices.

Using IEA and other data we find that outside the OECD group of countries, oil-fired electric power production is still alive and taking a little more than 2 billion barrels a year, roughly 6.6% of world oil demand. This sector is most surely under threat by the shakeout in world solar and windpower, which for solar power has seen 14 of the world's largest producers file for bankruptcy since the start of the year. Prices are now giveaway, stocks of surplus equipment are high - and installation in Asia can be rapid. The oil impact will be sure and certain: down.

Another major segment that features low in analyst reports and high in Asian oil demand- global marine and shipping oil demand - also takes a little more than 2 billion barrels a year, and was growing at a rock solid 7% a year, until 2009. Linked closely to Asian manufacturing and export trade, this segment is set to flat line, and may then seriously shrink, not only due to declining export growth out of Asia, but also to non-oil energy alternatives for shipping.

On the supply side the NOPEC pile is growing fast. Global oil and gas finds include Anadarko's epic-sized gas find off Mozambique in 2011 and emerging, possibly large-sized oil and gas finds off Madagascar, Tanzania and Kenya. After West African offshore therefore, with its likely or posssible trans-Atlantic ocean link for oil-bearing source rock we now have East Africa edging up as a new producer region. African oil and gas export potential is set to grow - and grow.

BROKERS OUT TO LUNCH
In a strange disconnect with reality, several large and midsize brokers and financial players are stolidly playing their customers' funds for an oil price surge. Trying to save the bull market for oil, as Goldman Sachs will tell, is already expensive but for MF Global, and most recently Peregrine Finance (trading as PFGBest) the results can be disastrous - for anybody who put money into their hands. These players, and their financial and business media friends are now obliged to talk up anything that talks up oil: the recent Norway oil trades union strike was milked for what it could but soon ended feeble in its price impact, leaving serious geopolitical tension and strife as the only real hope. Outside the Middle East, where Arab Spring-2 is always possible, inside the Gulf petro-states, China is agains flexing its muscles on the offshore zone around disputed islands in the East China Sea, and the dispute between North and South Sudan drags on, but times are frankly not looking good for the oil boomers.

Oil bulls can of course still flip the coin and guess that US oil or refined product stocks may have staged a recovery, this week. What the bulls call "surprise builds", like US gasoline stocks last week tend to show up all too often, but "suprise builds" may unfortunately (for them) start becoming the norm. Stock trends, including strategic oil stocks in Asia are those to watch for real signals of how world demand is shaping up - and in Asia surprise stock builds and oil demand growth shrinkage could very likely be emerging.

Erosion of the funds they have available to throw at the oil market, betting for a price jump may soon be the decisive factor driving a break of broker ranks. The result of this on leading markets like Nymex and the ICE will be a short period of "hectic trading" during which oil prices get slashed down to the $70 - $80 region where fundamentals say they belong. After that, the flak will fly as brokers and their capital partners reveal their recent losses.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2012 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 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