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Phil Flynn

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

While the International Energy Agency (IEA) makes a wild claim that global gasoline demand has peaked, in the real world it is a different story. The U.S. retail regular gasoline prices have now risen for 46 consecutive days to 288.4 for a national average according to AAA data. That’s the longest non-stop daily streak in at least 16 years according to Bloomberg and while we may see that streak broken next week, it clear that gas prices are heading much higher as vaccines let up. Yet what about the predictions from the IEA that Gasoline has peaked. IEA Executive Director Fatih Birol, “We do not think gasoline consumption will come back to 2019 levels again,” said IEA Executive Director Fatih Birol. Well, you only have to look at IEA predictions in the past that were off base. Remember, when looking at the IEA report, look at their data and not their conclusions because their data seems to contradict their assessments.

 

Yes, we are seeing a surge in electric vehicles and the potential that more people will work from home, yet if you look at consumption patterns in India and China where we will see the growth, it is clear that not only will we see gas demand rebound to 2019 levels, they will go beyond. Despite the push to electric vehicles, it will be a decade at best before we could see a complete switchover of the U.S. fleet. Of course, to even make that happen we would have to see huge improvements in battery technology and spend billions of dollars to enhance the electricity grid. Not to mention all of the fossil fuels that will have to be used to power that grid and of course figure out how to mine for millions of electric batteries.

Gas demand was one reason we saw RBOB futures fall because the Energy Information Administration (EIA) reported that gasoline demand fell as opposed to private forecasts that sad it was surging. Either way, as I mentioned before, it had no impact on pump prices. 

And while the International Energy Agency (IEA) sees peak gasoline demand, they do not see peak oil demand unless governments ramp up their green spending. The IEA says that, “The IEA is more upbeat on the oil demand recovery due to progress in rolling out COVID-19 vaccine programs, a raft of fiscal stimulus packages, and signs of strong industrial activity in China. After collapsing by 8.7 million b/d in 2020, the IEA estimates demand growth will rebound by 13.1 million b/d to 104.1 million b/d by 2026. Global oil demand, including biofuels, will recover to reach 103.2 million b/d in 2025, up from 91 million b/d in 2020 and almost 100 million b/d in 2019. Overall, global oil demand is now forecast to rise by 3.5 million b/d between 2019 and 2025, up from an estimate of 2.8 million b/d in October. IEA sees no peak oil demand under default scenario so tougher government policies are needed to curb oil use. They warn of the shrinking of global spare capacity supply cushion in the absence of more upstream spending.

OPEC’s effective spare crude production capacity will narrow to 2.4 million b/d by 2026, from 6.5 million b/d in 2020, the bulk of it in Saudi Arabia. The Middle East will dominate the 2021-2026 supply growth picture, while U.S. supply growth will be more modest compared to recent years. IEA estimates that the demand for OPEC’s crude will rise from 27.3 million b/d this year to reach 30.8 million b/d in 2026. By 2026, total oil production will rise by 10.2 million b/d from a six-year low of 94 million b/d in 2020. Fragile African OPEC members to see production declines. 

The Energy Information Administration reported that U.S. commercial crude oil inventories increased by 2.4 million barrels from the previous week. At 500.8 million barrels, U.S. crude oil inventories are about 6% above the five-year average for this time of year. Total motor gasoline inventories increased by 0.5 million barrels last week and are about 4% below the five-year average for this time of year. Finished gasoline inventories increased while blending components inventories remained unchanged last week. Distillate fuel inventories increased by 0.3 million barrels last week and are about 2% below the five-year average for this time of year.
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Phil Flynn

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