In 2008, it was fairly common practice to blame any of the following (evil passive index investors — hedge funds—oil traders—Opec) for driving oil prices up to $145 per barrel.
The standard narrative was either that irresponsible and greedy institutions were synthetically pumping the price higher — and in so doing imposing a needless energy tax on the global economy — or, alternatively, that the smart-money was taking advantage of oil scarcity for their own future profitability.
But with prices back at $60-65 per barrel levels, and the world facing something of a fossil fuel oil glut, is it time to frame the reality of 2008 in a different perspective?
Perhaps, by providing the world with the incentive it desperately needed to get its collective butt into action on alternative fuel investment and development, speculators/passive investors/Opec cartels/banks actually did everyone a massive favour, albeit costly favour, in 2008. Read more
When the International Energy Agency’s big annual report came out last week there was a big top line story picked up nearly everywhere: that US oil production will overtake Saudi Arabia by about 2020.
This is due to projected rises in oil being wrung from the sort of shale formations that have been the source of vast new supplies of natural gas in the past few years. Read more
From the IEA’s latest oil market monthly report:
The paradox is that US product stocks have been falling faster than normal and European refiners have been running flat out despite tepid product demand in both markets. Hurricane disruptions and a string of refinery glitches (especially on the West Coast) are only part of the US story. In both regions, the bottom line is that exports have become a key driver of refining activity and profits, not just the outlet for surplus product that they used to be. To wit, in Europe even gasoline cracks have staged a dramatic recovery, despite vanishing demand at home.
Over the current decade, Iraq accounts for around 45% of the anticipated growth in global output. Iraq becomes a key supplier to fast-growing Asian markets, mainly China, and by the 2030s Iraq is the second-largest global oil exporter, overtaking Russia.
That’s the main conclusion of the International Energy Agency’s special report on Iraq published on Tuesday. Read more
Is Saudi Arabia having to again resort to Jedi mind tricks? Does the central bank of oil still have such a big problem with its policy transmission mechanism that it can’t weaken prices by production alone — and what effect is this having on world trade?
From today’s FT: Read more
The IEA’ September Oil Market report paints an interesting picture of developments in the global refining industry. In short, having restructured intensively over the past few years — by closing off a lot of unprofitable capacity — the industry is now in a position to respond to the product tightness it itself created (as a result of its restructuring).
Which is important because product tightness persists despite an overhang of crude in many regions. Read more
Talk of an upcoming release from the US Strategic Petroleum Reserve continues to obsess the oil market, despite the fact that Brent has hardly budged in the past month:
A chart from a presentation last week by Maria van der Hoeven, executive director of the International Energy Agency (IEA):
The FT reports that oil demand has fallen for the first time since the 2008-09 global financial crisis, a result of the weakening economy, a mild winter and high crude prices, according to new estimates from the International Energy Agency. The industrialised nations’ watchdog said oil demand dropped by 300,000 barrels a day year-on-year in the final quarter of 2011. While still forecasting overall growth in demand for 2012, the agency revised down its outlook for this year to growth of 1.1m barrels a day, from 1.3m b/d, and said further downgrades were possible. Global oil demand in 2011 was 89.5m b/d. David Fyfe, head of the IEA’s oil industry and markets division, said the drop in demand late last year reflected the mild winter, which was in sharp contrast to the cold winter of 2010-11. But it was still surprising. This year oil markets in Europe and Asia, hit badly last year by the loss of Libyan supply, are worried that sanctions against Iran will seriously affect the availability of crude. Refiners in Europe, which imports about 600,000 b/d of Iranian crude, are already chasing replacement supplies – a task the IEA acknowledged would be “difficult.”
The China Flash PMI for August of 49.8 was met with relief today, even though it’s the second negative month in a row.
It’s that kind of scene now, however, when equity markets seem to be hoping for some kind of QE3 announcement at Jackson Hole on Friday even though a) it’s not an FOMC meeting, so Ben Bernanke can’t make a policy announcement, and b) things will need to get worse before purchasing Treasuries is back on the table. Read more
Crude oil in London rose above $110 a barrel for the first time in two weeks, even as data showed a big injection of government stocks into the market, the FT reports. ICE October Brent crude rose $2.02 to $111.15 a barrel, after touching $111.74 in early trade. Nymex September West Texas Intermediate gained $1.12 to $87.77. Brent had plunged below $100 last week in the aftermath of the US credit rating downgrade, worries over eurozone debt and signs of slowing economic growth. But with global demand still rising, prices have gained in five of the past six sessions. “Oil came off with the decline in equity markets in a risk-off phase,” said Harry Tchilinguirian, head of commodity strategy at BNP Paribas. “After the correction, what we’re looking at is the oil market’s return to its own dynamics.” Oil’s rebound has come while a 60m-barrel emergency stock release co-ordinated by the International Energy Agency is in full swing. The US is supplying about half the amount from its strategic petroleum reserve.
High oil prices and weaker economic growth have “dramatically” curtailed the expansion of global oil demand, with the world registering a zero increase in June, according to the International Energy Agency, the FT reports. The monthly oil market report, released on Wednesday, discloses a significant cooling of demand and a modest increase in supply. Total consumption of oil products in Asia fell in absolute terms by 500,000 barrels per day between May and June, declining from 20.6m b/d to 20.1m b/d. This was led by China, where total oil product demand fell by 1.5 per cent between May and June. Overall, the IEA has trimmed its forecast of global oil demand this year by 100,000 b/d, predicting it will average 89.5m b/d. “Concerns over debt levels in Europe and the US, and signs of slowing economic growth in China and India have spooked the market and raised fears in some quarters of a double-dip recession,” says the report.
Italy and Germany have voiced their opposition to a second release of oil by western nations’ strategic petroleum reserves, a sign that the International Energy Agency might not extend into August the 60m barrels release it ordered for July, the FT reports. The comments, with a larger-than-expected drop in commercial crude oil inventories in the US, boosted oil prices on Wednesday. Brent, the global benchmark, has already recovered all its losses following the initial release of the strategic petroleum reserve, nearing the $120 a barrel level. Senior officials in Rome and Berlin cautioned that, although their countries did not support the release, they would not formally oppose it. The IEA, the western countries’ oil watchdog, plans to review the oil market this weekend, weighting an increase in Saudi Arabian supply against production losses in Libya. The Paris-based agency needs the support of all 28 members to order a second release of oil.
Presenting, the SPR Awards summary, via the US Department of Energy.
It’s a vivid account of who bought what in last month’s emergency $30m barrel oil release: Read more
The IEA slaps speculators … The speculators swat right back.
The FT has kept busy reporting how the International Energy Agency’s decision last week to release 60m barrels of oil reserves has burned some energy traders. In particular, trades based on the relative price differential between Brent crude and Dubai crude have apparently suffered, as the spread between the two has plunged to a six-month low, dropping nearly 50 per cent in just four days apparently. Read more
The International Energy Agency could repeat its decision to release strategic oil reserves when the present 30-day draw down concludes, according to the organisation’s chief. Nobuo Tanaka, director of the IEA, told an FT energy conference on Tuesday that the oil market would be reassessed at the end of the agreed period for the current release of 2m barrels a day. Seperately, the FT reports that a number of traders and hedge funds are nursing losses after the IEA’s move induced a whiplash reversal in one of the biggest commodity trading trends of the year – a bet on a widening spread between different types of crude oil. Reuters adds that the reserve release has also wounded European refiners.
Many traders and hedge funds are nursing losses after a whiplash reversal on a widening spread between different types of crude oil, the FT reports. Traders say the unexpected release of the Western countries’ petroleum strategic stocks last week left many in the oil market wrong-footed, particularly those that had traded on the relative price differential of Brent crude and Dubai crude, which has fallen nearly 50 per cent in just four days. Such trades are one of the biggest trends in commodities markets in recent months.
The release of the Western countries’ petroleum strategic stocks has triggered significant disruption to one of the most popular relative-value trades among physical oil traders: the price differential between Brent crude and Dubai crude, the FT reports. The spread between lower quality, heavy sour Dubai crude, the benchmark for Middle East supplies, and premium quality, light sweet Brent, has narrowed to a 6-month low as the International Energy Agency floods the market with light, sweet oil. Seperately, Bloomberg says the WTI-Brent spread, based on August futures, is at $15.38 a barrel, up from $13.96.
Most of the commentary we’ve seen about the IEA’s announcement has understandably focused on the political ramifications (a shot across the bow at Opec) and, more frequently, its effect on oil price forecasts.
But what about the macroeconomic impact? Read more
Here’s a thought after the International Energy Association’s oil price-crushing decision.
The Wall Street Journal reports that the IEA has been working on the plan for months. Suddenly all those recent speeches by Federal Reserve chairman Ben Bernanke on ‘imported’ inflation through high oil prices, and the inability (or inappropriateness) of the US central bank to deal with it look very apt. The IEA’s move not only impacts oil prices by hitting supply, but also sends a signal to speculators. Read more
The US doesn’t like high oil prices. Neither does it like the speculators it thinks exacerbates them.
So why not take aim at both? Read more
Oil prices dropped more than 7 per cent after western nations released the biggest amount of oil from their emergency strategic stocks since 1991, in a warning shot aimed at Opec, the oil producers’ cartel, the FT reports. The International Energy Agency agreed to release 60m barrels of oil in the coming month to offset the daily production loss of 1.5m barrels of high quality oil from Libya, the north African country engulfed in a civil war. The US led the release with its special petroleum reserve providing 50 per cent of the crude oil. Japan, Germany, France, Spain and Italy are providing most of the rest. The IEA said that it was in consultation with China, the world’s second-largest oil consumer, but declined to say whether Beijing would join the effort. FT Alphaville, meanwhile, asks if the move may have been intended as a substitute for quantitative easing? This is only the third time in the history of the IEA – set up in 1974 as a counterbalance to Opec after the Arab oil crisis – that there has been a release. The move has been triggered by western concerns about the impact of high crude prices on the economic recovery.
Introducing the SPQR: the Special Petroleum Quantitative Reserve.
Some 36 years in the making, specifically designed to provide the US (and via that global markets) with vital oil supplies if and when an emergency strikes, tapped only twice ever in its history… Read more
Oil prices dropped more than 7 per cent after western nations released the biggest amount of oil from their emergency strategic stocks since 1991, in a warning shot aimed at Opec, the oil producers’ cartel, reports the FT. The International Energy Agency agreed to release 60m barrels of oil in the coming month to offset the daily production loss of 1.5m barrels of high quality oil from Libya, the north African country engulfed in a civil war.
Exchange or sale?
That’s the question the Goldman Sachs commodities research group is waiting for the US to answer before making a call on how today’s IEA announcement will ultimately affect oil prices through next year. Read more
From the ranks of FT Alphaville’s own AAA-list comes Mohamed El-Erian with a post about the three phases of governments’ involvement in global markets since the crisis.
———— Read more
Oil-producing countries have been warned to increase output to safeguard global economic recovery or face the threat of the release of strategic stockpiles of oil by western countries for the first time since 2005, the FT reports. The International Energy Agency urged the Opec oil cartel to step up output, saying there was a “clear, urgent need for additional supplies”. In a statement the IEA, the advisory body for western countries on energy, added: “We are prepared to consider using all tools that are at the disposal of IEA member countries.” These tools are limited to reducing demand for oil and drawing on strategic reserves held by member governments, which total 1.6bn barrels. Any decision to use these stockpiles would be taken by the IEA’s board, where all 28 member states are represented. Such a decision has only been taken twice before. Stocks were released in 1991 when western allies attacked Iraq in response to its invasion of Kuwait, which deprived the market of 4.3m barrels per day, and hurricane Katrina in 2005, which stopped 1.5m b/d of output
A confusing picture at the moment on measures to address the Libyan supply shortfall in the short term — even as Gaddafi’s end seems to be nearing, at last.
And it really is the short term that matters for those exposed to Libya. Read more
The Opec oil cartel is quietly increasing its production as oil prices flirt with $100 a barrel, the western countries’ oil watchdog said on Tuesday, according to the FT. The revelation by the International Energy Agency comes in spite of a string of public comments from Opec countries such as Iran and the United Arab Emirates suggesting that there was no need for more oil and playing down the impact of high oil prices. The cartel left its official production levels unchanged at a meeting last month in Quito, Ecuador. But the IEA said on Tuesday that Saudi Arabia and other Opec countries were quietly lifting their output in response to higher prices.
High oil prices could threaten the fragile economic recovery among developed nations this year putting pressure on the Opec oil cartel to increase production, the FT reports. According to the leading energy watchdog, oil import costs over the past year for the 34 mostly rich countries that make up the Organisation for Economic Co-operation and Development have soared by $200bn to $790bn at the end of 2010. The International Energy Agency says the increase, due to high crude prices, is equal to a loss of income of about 0.5 per cent of OECD gross domestic product. Oil prices have edged closer to $100 a barrel in recent weeks and Brent crude hit $95 a barrel for the first time in 27 months on Monday as the economic recovery has gathered pace.