Experts can’t agree on what will happen to oil prices, supply or demand.
It’s really anyone’s guess, and so all we can do is present some scenarios ahead of the upcoming November 4 milestone that the US imposed on many countries to stop importing from Iran.
What is obvious is that the oil sector has become an oil wrestling match with no clear winner in sight.
During the first week of October, Brent rocketed above $86 a barrel, while WTI reached $76.
Oil prices took a beating Wednesday after U.S. crude stockpiles showed a significant increase, fanning more fire to concerns that a slowdown in global demand for oil is on the horizon.
Earlier this month, the International Monetary Fund (IMF) reduced its projections for global economic growth in 2018 and 2019, and the International Energy Agency (IEA) later deemed oil markets “adequately supplied” in the near term, lowering demand forecasts, driving prices lower.
WTI closed at $69.75 in New York, dropping below $70 a barrel for the first time in weeks while Brent hovered near $80 a barrel.
Reports show that US crude stockpiles surged by 6.5 million barrels, having increased for four consecutive weeks, reaching 2% above the 5-year average for this time of year, according to the U.S. Energy Department.
Oil demand higher? But we thought…
Abu Dhabi’s National Oil Company (ADNOC) released a recent statement saying that 100 million barrels per day historic consumption milestone will to be achieved by the end of the year, as high-growth Asian economies fuel demand.
“There are opportunities for expansion, investment, and growth in the oil and gas industry, as demand for energy continues to rise, particularly from the high-growth economies of Asia, Sultan Ahmed Al Jaber, UAE Minister of State and Group CEO of ADNOC said in a recent London conference.
Al Jaber said the petrochemicals sector will become the single largest driver of oil demand growth by 2050.
The Abu Dhabi government has taken the historic decision to open up six new onshore and offshore oil and gas exploration blocks, in a competitive bid process that closes this month. These blocks, spanning 30,000 kilometers, have attracted an overwhelming response from 39 bidding parties from all over the world.
ADNOC is significantly boosting its downstream capabilities, investing $45 billion, to capitalize on state of the art facilities in Ruwais, which when fully operational, the complex will be the world’s largest integrated refining and petrochemicals complex.
India wants more oil
India’s oil demand is expected to rise by 5.8 million barrels per day (bpd) by 2040, accounting for about 40% of the overall increase in global demand during the period, OPEC’s secretary general said on during last weekend, as reported by LiveMint.
“India is projected to see the largest additional oil demand (3.7% per annum) and the fastest growth in the period to 2040,” said Mohammed Sanusi Barkindo, OPEC secretary general.
He added that the global oil sector needed $11 trillion in investment to meet future demand by 2040.
Global oil demand is expected to increase by 14.5 million bpd in 2017 to 111.7 million bpd in 2040, OPEC said in its latest report, issued in September.
According to the Economic Times, an Indian online daily, Saudi on Monday committed to meeting India’s rising oil demand.
Speaking at India Energy Forum, Saudi oil minister Khalid al-Falih said Aramco together with ADNOC are signing up for taking 50% stake in the proposed $44 billion, 60 million tons Ratnagiri refinery and petrochemical complex in Maharashtra. as “an early example of growing partnership” between India and Saudi Arabia
Oil peak scenario
Reuters said recently that global oil consumption will reach 100 million bpd, more than twice what it was 50 years ago, and it shows no immediate sign of falling.
“Demand is still rising by up to 1.5% a year,” Reuters said, “But there is no consensus on when world oil demand will peak.”
Of the almost 100 million barrels of oil consumed daily, more than 60 million bpd goes for transport.
Much of the remaining oil is used to make plastics by a petrochemicals industry.
The IEA expects world oil demand to rise for at least the next 20 years, heading for 125 million bpd around mid-century, according to Reuters.
The research unit of China National Petroleum Corp predicts China’s oil demand will top out at around 13.8 million bpd as early as 2030.
Goldman Sachs has said oil demand could peak by 2024, while Consultancy Wood Mackenzie is somewhere in the middle of the range, expecting demand for transport to flatline from 2030 and overall use to peak in 2036.
Prices going up, but we thought…
Potentially pushing up prices are U.S. sanctions on Iran’s oil exports, with a faster-than-expected decline in the country’s production pushing Brent prices up over $80 per barrel, versus $70 two months ago, said Forbes.
Some 1.7 million b/d could be removed from the global market by the end of the year.
“Oil prices have risen 20-25% this year and some believe that a return to triple-digits is coming soon, Forbes reports
“It’s fair to say that triple-digit oil though would cut into global oil demand growth, potentially pulling prices back down again.”
It’s interesting to note that U.S. oil prices are up despite domestic production surging to record highs, rising 20% this year.
Now, EIA’s latest forecast has 2019 U.S. crude oil production going to 11.76 million bpd. The U.S. Secretary of the Interior Ryan Zinke said that the US could hit 14 million bpd by 2020.
The widening Brent-WTI spread (around $10) helped the prospects for US crude exports, at 2.313 million bpd over the past three weeks, nearly double from the August average.
“EIA puts the Brent-WTI spread at $6.50 next year or so, with exports in solid shape when the gap is at least $3.00,” said Forbes.