Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Energy prices are holding up pretty good even as the International Energy Agency (IEA) tells us that the best days of demand are behind us. Libya’s largest oil field will flood the world with oil, and somehow oil is higher. Maybe it’s because it’s turnaround Tuesday. Perhaps because the markets are digesting Libyan oil’s real impact, or perhaps it is because Chinese oil imports continue to sizzle.
Some traders thought that China hit peak oil demand. Ok, maybe not peak oil demand but at least a near-term peak in oil imports. Yet, as reported by S@P Global Platts, China’s crude oil imports ended their downtrend to gain 5.5% at 11.85 million b/d in September from a four-month low of 11.23 million b/d in August, but the recovery looked temporary amid less new arrivals in October, port sources and refiners said on October 13.
Ok, temporary, maybe like peak oil was. Remember when the IEA back in 2010 said that global oil production had topped out ago in 2006? Well, they are at it again, but this time on the other end of the spectrum.
The IEA in, “The World Energy Outlook 2020”, the International Energy Agency’s flagship publication, focuses on the pivotal period of the next ten years, exploring different pathways out of the crisis. The new report provides the latest IEA analysis of the pandemic’s impact: global energy demand is set to drop by 5% in 2020, energy-related CO2 emissions by 7%, and energy investment by 18%. The WEO’s established approach – comparing different scenarios that show how the energy sector could develop – is more valuable than ever in these uncertain times. The four pathways presented in this WEO.
In the Stated Policies Scenario, which reflects today’s announced policy intentions and targets, global energy demand rebounds to its pre-crisis level in early 2023. However, this does not happen until 2025 in the event of a prolonged pandemic and deeper slump, as shown in the Delayed Recovery Scenario. Slower demand growth lowers the outlook for oil and gas prices compared with pre-crisis trends. But broad declines in investment increase the risk of future market volatility.
Renewables take starring roles in all our scenarios, with the solar center stage. Supportive policies and maturing technologies are enabling very cheap access to capital in leading markets. Solar PV is now consistently less expensive than new coal or gas-fired power plants in most countries, and solar projects now offer some of the lowest-cost electricity ever seen. In the Stated Policies Scenario, renewables meet 80% of global electricity demand growth over the next decade. Hydropower remains the largest renewable source, but solar is the primary source of growth, followed by onshore and offshore wind.
“I see solar becoming the new king of the world’s electricity markets. Based on today’s policy settings, it is on track to set new records for deployment every year after 2022,” said Dr. Fatih Birol, the IEA Executive Director. “If governments and investors step up their clean energy efforts in line with our Sustainable Development Scenario, the growth of both solar and wind would be even more spectacular – and hugely encouraging for overcoming the world’s climate challenge.”
Yet despite this, the outlook for crude oil is somehow higher. Maybe it is because this is a long-term outlook, and we know that these predictions are sometimes wildly wrong in oil.
The UAE disagrees. Their oil Minster Mr. Mazroui says that, “we have passed the eye of the storm in oil demand and it is moving towards recovery. The market also seems to disagree so that it will take some time. Yet he also says there is no official plan to keep current oil production cuts in place.
In the meantime, OPEC says that they cut their output by 50,000 barrel a day. They cut their demand forecast by 200,00 barrels a day. OPEC says that, “World Oil Demand In 2020, world oil demand is estimated to decline by 9.5 mb/d y-o-y, relatively unchanged from last month’s assessment, reaching a level of 90.3 mb/d. In the OECD, demand growth is revised slightly lower by around 0.06 mb/d in 2020. This downward revision accounts for lower expectations for transportation fuel consumption in the US and parts of Europe in 2H20 following a weak summer driving season, which has more than offset a less-than-expected decline in 1H20 data, due to steady petrochemical feedstock demand in the US and increased heating fuel restocking in Europe. In the non-OECD, oil demand in 2020 was adjusted slightly higher, by around 0.05 mb/d m-o-m, due to better-than-expected demand from China. In 2021, world oil demand is revised lower by 0.08 mb/d, compared to last month’s assessment, now forecasting a growth of 6.5 mb/d, reaching a level of 96.8 mb/d. This downward revision mainly reflects lower economic growth outlook for both the OECD and non-OECD regions, compared to last month’s forecast.
The non-OPEC liquids supply forecast in 2020 is revised up by 0.31 mb/d from the previous month’s assessment, mostly due to a higher-than-expected recovery in US liquids production. Non-OPEC liquids supply is now estimated to contract by 2.4 mb/d y-o-y, to average 62.8 mb/d. Oil supply in 2020 is forecast to decline mainly in Russia with 1.1 mb/d, US with 0.7 mb/d, Canada, Kazakhstan, Colombia, Malaysia, and Azerbaijan, while it is projected to grow in Norway, Brazil, China, Guyana and Australia. The non-OPEC liquids production forecast for 2021 is revised down by 0.11 mb/d, mainly for the US, and is now expected to grow by0.9 mb/d, to average 63.67 mb/d. The main drivers for supply growth are expected to be the US with 0.3 mb/d, Canada, Brazil and Norway. The majority of this growth represents a recovery of production from 2020, rather than new projects. OPEC NGLs in 2020 are estimated to decline by 0.1 mb/d y-o-y, and forecast to grow by 0.1 mb/d y-o-y in 2021, to average 5.2 mb/d. OPEC crude oil production in September decreased by 0.05 mb/d, m-o-m, to average 24.11 mb/d, according to secondary sources.
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