The International Energy Agency (IEA) is predicting that oil-demand growth to slow to 400,000 bpd in 2028 and peak before the end of the decade, states Phil Flynn of PRICE Futures Group.
This comes just a day after the Biden Administration announces a 12-million-barrel buyback for the Strategic Petroleum Reserve (SPR) on the long road back to replacing 180 million barrels they had released. Yet if the IEA is correct maybe we shouldn’t bother to replace the oil in the reserve.
IEA predicts that “Growth in the world’s demand for oil is set to slow almost to a halt in the coming years, with the high prices and security of supply concerns highlighted by the global energy crisis hastening the shift towards cleaner energy technologies”. So why should we bother refilling the SPR?
I mean the IEA is the sane agency that predicted the peak oil supply. You Remember! They started to push for the use of renewable fuels because world oil demand exceeded the earth’s ability to supply it any longer. The world was not going to be able to supply us with 80 million barrels a day. Impossible!
Yet today the IEA is predicting that global oil production this year will rise by 1.4 million barrels a day mb/d to reach a record-high annual average of 101.3 mb/d. But they remind us that this is a sharp slowdown from growth of 4.5 mb/d in 2022, which was dominated by the OPEC+ alliance as it phased out historic 2020 cutbacks. OOPS,
IEA is now telling us to move to alternative fuels, not because the world can’t produce more oil but to save the planet. They previously said that if the world was going to meet its climate goals the world needed stop all investments in fossil fuels immediately. Of course, if the world took that advice the world would be in an energy crisis of epic proportions.
This is not the first time that the IEA has predicted “peak demand.” That was supposed to have already happened. Yet today the IEA is forecasting “that based on current government policies and market trends, global oil demand will rise by 6% between 2022 and 2028 to reach 105.7 million barrels per day (mb/d)—supported by robust demand from the petrochemical and aviation sectors.”
Yet by predicting peak demand, they can further discourage much-needed investment in fossil fuels. The IEA says that upstream investment plans, in real terms, are 47% below 2014. So maybe the plan to get to peak demand is to make fossil fuels unaffordable for anyone.
The International Energy Agency (IEA) may be predicting peak demand with a large dose of hopium. But there is major blowback against the IEA predictions. Not only by OPEC, which accused them of always being wrong but by investors and corporations, and consumers of oil and gas around the world
The reality in the real world we’re seeing more pushback from governments especially in Europe to these green energy policies that have left their economies vulnerable to recession, increasing inflation and decreasing the stability of their power grids as well as their national security.
There are more signs that countries and investors are fighting back against the ESG” (environmental, social, governance) movement that puts politics over common sense, profits, and energy reality. The idea is that a company’s role in society is not to think about profits or innovation of being more efficient but how it impacts, the full gamut of environmental and social issues. That can allow politicians to punish companies that do not fall in line with their political agenda. Im sure that could be tempered a bit with a big political donation, but I digress.
The reality is that corporations in most cases add to society creating wealth products and services that improve the quality of life of everyone on the planet. Because of this pushback, the prediction of “peak oil demand by the end of the decade is very suspect. It also fits with the IEA political agenda.
Today oil will take its cue from the FOMC. The market is widely pricing in the fact that the Fed will pause from their historic rate hiking cycle which is supportive of the price of oil especially after it was reported that consumer prices rose 4% in May year over year, less than the 4.1% expected and the lowest inflation rate since March 2021. We do get PPI but unless that comes in hot expect the rate hikes to stop.
Oil is also getting support from the weekly report American Petroleum Institute which was not nearly as bearish as the whisper numbers. The API reported that crude supply was up by 1.02 million barrels. The API said that gasoline supply rose by 2.075 million barrels and distillate stocks up by 1.3 million barrels. We will get the Energy Information Administration ahead of the Fed.
While product supplies have improved, they are still too tight for comfort. John Kemp At Reuters wrote that “Global distillate fuel oil cracks have strengthened slightly over the last month as inventories have not risen as much as expected given the scale of the manufacturing and freight downturn across the major economies. Kemp says that “In Europe, distillate inventories had increased by +32 million barrels at the end of May 2023 compared with their low point at the end of June 2022, but were still -32 million barrels (-8% or -1.00 standard deviations) below the prior ten-year seasonal average. In Singapore, inventories had increased by +2 million barrels by early June 2023 compared with June 2022 but were still -2.5 million barrels (-23% or -1.16 standard deviations) below the ten-year average. In the United States, stocks had risen by +5 million barrels since June 2022 but were still -22 million barrels (-16% or -1.18 standard deviations) below the ten-year seasonal average.
So, will President Biden be able to buy back all of his oil below $70 a barrel? Bloomberg reported that The US plans to purchase about 12 million barrels of oil this year as it begins to refill its depleted emergency reserve amid falling crude prices, according to two people familiar with the matter.
The figure includes three million barrels already scheduled for delivery in August and an additional 3 million barrels from a solicitation the Biden administration issued on Friday, according to the people. An Energy Department spokesperson said they will continue to “seek opportunities for additional repurchases as market conditions and the constraints of SPR operations allow.” The more than 700 million barrel-capacity Strategic Petroleum Reserve is at a 40-year-low following a historic 180-million-barrel drawdown last year.
And every oil is ready to break out to the upside and an Iranian rumor comes out that causes the market to pull back if oil gets too hot just pull an Iranian rumor out of your pocket. After pushing a baby the Wall Street Journal reported that the US is resuming diplomacy with Iran on prisoner and nuclear issues the report caused oil to dip back below $70 a barrel this is leading to expectations that the US will lift sanctions on Iranian oil and why the heck not they’re not enforcing them anyway.
Nat gas is heating up everywhere you look. Z4 Energy Research points out that Texas power usage we’ll break records with the heat wave this week! Hopefully, the wind will blow to keep the power grid up. In Europe, natural gas prices surged 17%. So much for those record storage levels. A mild winter bailed out Europe on natural gas but could a hot summer put Europe back in crisis?
BW Analytics reports that the combination of a downturn in production readings, possible ERCOT peak load records as soon as later this week, and rising late June heat forecasts collectively lifted the NYMEX front-month contract despite bearish spot prices.
Over the next two weeks, power sector gas burns may swell 6.5 Bcf/d as daily CDDs double from a mild start to June into bullish into the end of the month. Still, LNG demand remains particularly muted—more than 3.5 Bcf/d off springtime highs—while storage surpluses continue higher. Henry Hub spot prices below $2.00 remain a prominent indicator of near-term weakness. Over the next 30-45 days, rising power sector gas burns into mid-summer, returning LNG feed gas demand, and durable natural gas production declines could ratchet the supply/demand balance to send NYMEX futures higher.
Learn more about Phil Flynn by visiting Price Futures Group.