Oil and the Markets
The oil price seems secondary to the gyrations of global markets, accounting, in part, for the delay in this note, although US consumption continues to support weakening economic activity (consumption down 3% YoY for most of the summer). While it’s not easy to allocate reduced US consumption between energy efficiency and demand destruction, it’s worth remembering that peak US oil demand occurred in 2007, and has only momentarily returned to those levels. Crude imports are a handsome million barrels a day below peak. Oil demand is “all about Asia.’ The other factor is that not a lot is going on in the space, unless you count the mini-compression in oil prices!
What HAS happened, though is interesting, in the context of both 2008-9 ($147 to $35) and global natural gas environment. WTI’s retreat from around $100 to $80 ish, still above the returns-required price of the highest cost producers (Canadian Oil Sands, UK North Sea, etc), suggests things are not (yet) as bad as Great Recession, Part I. Limited non-OPEC supply growth, the ongoing shortage of light sweet crude (Libyan outages), have, so far, supported the Brent Price (still over $105/bbl). Meanwhile the North American Natural Gas Glut is likely to continue for years, especially where ‘wet gas’ offers outsized returns as a ‘co-product’ and, it seems, the Fracking Controversy heads toward a gradual resolution (jobs, jobs, jobs). And global gas demand continues to grow ahead of forecasts, with two related anecdotes below.
In other environments, the acceleration of Repression in Syria might have negative geopolitical implications but, frankly, even that has been below the energy radar. Meanwhile, Chinese imports continue to grow at a 5%+ pace, and Middle Eastern consumption, tied to high single digit power growth and subsidies (see below), steadily REDUCING the OPEC oil available for export.