China Continues to Weigh. The Energy Report 08/29/2024

Once again very tight oil supply and very good demand is being overshadowed by China oil demand concerns. The latest worry is coming from UBS that is predicting that China’s GDP will miss its 5% target and grow at only 4.6% this year which was lowered from earlier forecast of 4.9% for 2025. Yet here at home the Energy Information Administration (EIA) showed petroleum draws across the board with gasoline inventories continuing to plummet at a breakneck pace. US gasoline demand is near a record high for this time of year hitting 9.307 million barrels a day as overall petroleum demand surged to 21.592 million barrels a day as we head into what is supposed to be a record-breaking Labor Day Holiday travel weekend.

Gas price going into Labor Day is at a three-year low that could see travel shatter some records. By air, the TSA is predicting that 17 million people will go through airport security, the busiest on record for the travel period. It is a fact that gas prices are down even as supply is less than a year ago and demand is higher. Part of that is slowing industrial usage in China and weaker demand for diesel.

The EIA put total demand at 20.6 million barrels a day, down by 2.9% from the same period last year. Gasoline demand averaged 9.1 million barrels a day, up by 1.1% from a year ago. Distillate demand, because of weak global demand, was down 3.6% while jet fuel demand was up 2.6% from a year ago.

Yet while gas prices are down supplies are getting tighter. John Kemp at Reuters reported that U.S. gasoline inventories have depleted much faster than normal since the middle of July. He says that gasoline inventories fell by 15 million barrels between July 12 and August 23, the largest seasonal draw since 2008. That is compared with a prior ten-year average of just -5 million barrels. So, enjoy the low gas prices because they may not last.

In fact, it’s probably time to revisit Exxon and their warning about a looming oil shortage. Exxon Mobil said that, “Our Outlook reflects oil production naturally declining at a rate of about 15% per year. That’s nearly double the IEA’s prior estimates of about 8%. This increase is the result of the world’s shifting energy mix toward “unconventional” sources of oil and natural gas. They warn that, “These are mostly shale and dense rock formations where oil and gas production typically decline faster. To put it in concrete terms: With no new investment, global oil supplies would fall by more than 15 million barrels per day in the first year alone. That means at that rate, by 2030, oil supplies would fall from 100 million barrels per day to less than 30 million – that’s 70 million barrels short of what’s needed to meet demand every day.

The Democrat presidential nominee was for total electrification of the US car fleet before she was against it, well at least we think she is and should maybe probably read the Exxon report. They say, “If every new car sold in the world in 2035 were electric, oil demand in 2050 would still be 85 million barrels per day. That’s the same as it was in 2010.”

Instead of the short-sighted assault on fossil fuels that has led to higher prices and global instability Exxon Mobil is calling for governments, companies, universities, and others to work together to achieve a transition that increases the supply of energy for everyone while steadily and thoughtfully reducing emissions. Given the need to do more and do it faster at a lower cost, progress will need to  occur in parallel, supported by durable policies that are focused on: • More transparency to give the market more lead time to adapt to changes • Outcomes to keep the market focused on the best technologies to reduce the most emissions at the lowest price. Collaboration is key to finding the right application of technology to lower emissions in specific industries.

That’s why we believe governments should create a level field in which all technologies can compete without fear or favor so that the best choices emerge. Where no market exists and initial costs are high, incentives make sense to get things started. Butgovernment incentives cannot – and should not – be in place forever. To get to net zero, markets must be developed to encourage reduced emissions. “To get serious, three things are needed: supportive public policy, significant technology advancements, and a smooth transition from government subsidies to market-based mechanisms.”

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