FRACTIONAL FLOW

Archive for the ‘OPEC’ Category

World Crude Oil Supplies per July 2017

In this post I present developments in world crude oil (including condensates) supplies since January 2007 and per July 2017.

  • In this post the world crude oil (inclusive condensates) supplies is split into three entities, North America [Canada, Mexico and the US], OPEC(13) and other Non OPEC [World – {North America + OPEC(13)}] with a closer look at Brazil.
  • For OPEC(13) a closer look at developments of number of active oil rigs versus developments in the oil supplies. This is supplemented with developments in the oil supplies versus the number of active oil rigs for some selected OPEC countries.
  • Looking at figure 07 for OPEC(13) the increase in its supplies as of late 2014/early 2015 followed a period with noticeable growth in oil rigs and likely capacity expansions/modifications of oil process/treatment facilities.
    The accompanying increase in OPEC(13) supplies may simply have been rationalized from a pure business desire to recover the investments (CAPEX) from these capacity expansions.
  • Finally a closer look at developments in petroleum consumption/demand and stock changes for the Organization for Economic Cooperation and Development (OECD).
    The OECD has about half of total global petroleum consumption and a major portion of the global petroleum stocks.
  • “It took a lot of costly oil to bring down the oil price. This is the magic from lots of cheap credit.”

Data from this post is primarily from EIA Monthly Energy Review October 2017.

Figure 01: Figure 1: The stacked areas in the chart above shows changes to crude oil supplies split with North America [North America = Canada + Mexico + US], OPEC and other non OPEC [Other non OPEC = World – (OPEC + North America)] with January 2007 as a baseline and per July 2017. Developments in the oil price (Brent spot, black line) are shown against the left axis.

It was the oil companies’ rapid growth in CAPEX leveraged by cheap debt [ref US Light Tight Oil (LTO)] and expectations of a sustained higher oil price that brought about a situation where supplies started to run ahead of consumption/demand that brought the oil price down. During the run up to the oil price collapse, supplies also grew from other non OPEC (ex North America) from developments sanctioned while the oil price was high and expected to remain so.

Following the oil price collapse several of these developments had to take considerable write downs.

This coincided with increased OPEC supplies in what became widely explained as a bid from OPEC for market share.

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Developments in Energy Consumption and Private and Public Debt per 2016

For some time I have explored the relations in developments for total debt [private and public], interest rates, Gross Domestic Product (GDP) energy consumption and thus also the oil price.

My theory has been that there are relations between changes to total debt and energy consumption and thus energy prices. Changes to total credit/debt should thus be reflected in energy consumption. Price formation is also influenced by several other factors and most prominently supply and demand balances.

To me, demand appears to be the one that is poorly understood and demand has been, is and will continue to be what one can pay for.

All transactions involving products and services require some amount of energy thus currency/money becomes a claim on energy.

During the last decades the world was in a gigantic experiment with debt expansion, most recently fueled by low interest policies which allowed to pull demand forward and for some time negate higher prices when demand ran ahead of supplies.

Debt expansions can go on until they cannot, as some economies already have experienced. In the recent decades, growth in total debt was higher than the growth in GDP (ref figure 1) and there is a strong relation between changes to total debt and GDP.

Figure 1: The chart above shows [stacked areas] developments in total private and public debt in Japan (black/grey), Euro area (yellow), US (blue) and China (red).
In the chart is also shown [stacked lines] developments on the Gross Domestic Product (GDP) for the same 4 economies.
NOTE: All data are market value, US$.
The GDP (lines) have been stacked. The bottom line shows Japan, next is (Euro area + Japan) and the top line [China] also shows the total for the 4 presented economies.
Data on private and public debt from Bank for International Settlements (BIS).
Data on GDP from the World Bank [WB]. WB GDP data for 2016 were not publicly available as this was posted.
Note that total GDP for these 4 economies declined from 2014 to 2015.

In this post I also present a closer look at developments in energy consumption and total debts [private and public] for China, Italy, Japan, Spain, United Kingdom and USA.

As of 2016 these 6 countries had about 47% of the total global energy consumption and 42% of the total global petroleum consumption.

As the private sector debt growth slowed/reversed the public sector took over and it appears that public debt growth is not as potent to stimulate growth in energy consumption [and possibly GDP], but sustains or slows the decline in total energy consumption.

Part of the explanation for this may be that much  of the increased public deficit spending is directed towards social programs (more unemployment benefits etc.) which at best may sustain demand.

The 6 countries are presented in the sequence of how I perceive how far they are into the debt deleveraging cycle.

There are other forces at play here as well, as oil companies entered into a bet that high oil prices would be sustained by consumers continuing to have access to credit/debt, which would allow the oil companies in an orderly manner to retire their steep growth in debts required to develop the costlier oil. The debt fuelled growth in investments gradually created a situation where supplies ran ahead of demand, thus collapsing the oil price in 2014.

To me the sequence of events is:

Changes in credit/debt => Changes in energy consumption => Changes in GDP

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The Contango Spread Supports The Oil Price And Results In Strong Stock Building

As analysts and pundits keep staring into their crystal balls searching for clues to future moves in the oil price, it may be more helpful to look at some actual developments that may explain the recent strong US stock builds, developments in US total petroleum consumption and what this now may presage about future oil price movements.

In this post I present a closer look at the recent growth in US total petroleum demands split into:

  • Development in US total petroleum consumption (inclusive some selected products)
  • Rate of stock build of US commercial crude oil stocks

Then a look at developments in crude oil supplies from OPEC where several of the big oil producers in the Middle East have had strong growth in the number of oil rigs since early 2014. Recent media reports about increases in oil supplies from the biggest Middle East oil producer.

Figure 01: The chart above shows developments in the oil price (Brent spot), blue line and left hand scale [The oil price has been multiplied by 4 to fit the scaling on the left hand scale]. The thick black line shows the weekly EIA reported total inventory of US commercial crude oil stocks, left hand scale. The thin gray line plotted versus the right hand scale shows the daily changes to crude oil inventories from weekly EIA data. The thick red line plotted versus the right hand scale is a trailing 28 days moving average of changes to the crude oil inventories. Stock draw downs adds to supplies and may moderate price growth for some time. Figure 02 has zoomed in on the recent developments.

Figure 01: The chart above shows developments in the oil price (Brent spot), blue line and left hand scale [The oil price has been multiplied by 4 to fit the scaling on the left hand scale]. The thick black line shows the weekly EIA reported total inventory of US commercial crude oil stocks, left hand scale.
The thin gray line plotted versus the right hand scale shows the daily changes to crude oil inventories from weekly EIA data.
The thick red line plotted versus the right hand scale is a trailing 28 days moving average of changes to the crude oil inventories.
Stock draw downs adds to supplies and may moderate price growth for some time.
Figure 02 has zoomed in on the recent developments.

In Q1 2014 the average daily US stock build was 0.29 Mb/d and during Q1 2015 the average US daily stock build was 1.10 Mb/d.

Demand for US stock build was up 0.8 Mb/d year over year. This stronger stock build temporarily adds to (global) demand and supports the oil price.

What drives this strong stock build is the price spread between contracts for prompt/front month deliveries versus contracts for later deliveries when the futures curve is in what is referred to as contango, refer also figure 3.

The recent strong builds in US crude oil storage may give away some clues about underlying developments in consumption.

Demand = Consumption + Stock changes = Supplies

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