1. Gasoline and Crude
2. Reaction to the National Petroleum Council's Report
3. China's Economic Growth
4. Energy Briefs
The surprise of the week came on Wednesday when the EIA announced that US gasoline stocks had fallen by 2.3 million barrels rather than growing by 900,000 barrels as analysts had expected. The drop came on lower gasoline imports and on increased gasoline demand. The American Petroleum Institute reported last week that gasoline deliveries during June approached 9.8 million barrels per day, up 3.7 percent from last year. These numbers are somewhat higher than those being reported by the EIA. Overall, US petroleum deliveries were up 1.3% in the first half compared to a year ago.
For the rest of the summer, the US gasoline situation likely will depend on the volume of imports. Despite record gasoline production, US refineries do not seem to be able to keep up with increased demand so that imports averaging above 1.3 million barrels per day and no significant hurricane damage will be the key to getting through the next six weeks without problems.
In London, oil traded in a range just below the all time high of $78.65 set last August, although desirable light oils such as those from Nigeria are already over $80 a barrel. Nearly all observers are expecting higher prices later this year. Oil movement trackers are expecting lower OPEC shipments during the next few weeks and a recently updated Saudi projects schedule has dropped two expansion projects. During the week several major financial institutions released papers talking about oil reaching $90 or $95 dollars a barrel this year and topping $100 next year if OPEC does not increase shipments soon.
In Washington, senior officials continue to push OPEC officials to increase production, while in the Middle East senior OPEC officials continue to deny the need for a production increase. During the week, Brent oil futures shifted into backwardation, a market condition that points to expectations of a tighter supply/demand situation and big draws on oil stockpiles ahead.
The formal release last week of the NPC’s 476-page report on the future of oil and gas production entitled "Facing the Hard Truths about Energy," brought forth a range of comments from all over the world. As could be expected people who are “peak oil aware” were disturbed by the key judgment that "The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically." The heart of the report is the notion that while conventional oil and gas production may slow down in the next 25 years; higher prices will bring forth new sources of unconventional energy and new technology so that increasing demand will be satisfied.
Some of the recommendations such as a call for rapidly increasing the efficiency with which we use fuel and developing strategies for capturing CO2 emissions were widely approved. However, as the conservative Washington Times pointed out, the good points of the study were “overshadowed by its most glaring omission, “the failure to address likely supply shortfalls” in the near term and “the consequences that America will suffer.”
This report, however, marks a major step forward in the oil industry’s willingness to admit that there is an energy problem ahead and that immediate action is necessary. Given the political constraints on a report of this nature, the effort marks some sort of a milestone. Thus far newspaper stories critical of at least some aspects of the report seem to be outweighing those that take the report’s assertions and conclusions at face value.
Among the more significant developments bearing on peak oil last week was the report that China's annual economic growth surged to an 11-year high of 11.9 percent in the second quarter. The figures put China on course for its fifth straight year of double-digit growth. It will soon overtake Germany as the world's third-biggest economy.
As could be expected, Chinese energy consumption grew along with the GDP with electricity production up 16 percent, crude imports up 11.2 percent, and coal imports up 47 percent during the first half of 2007, year-on-year. In June the numbers were even more impressive with coal imports up 72 percent and oil imports up nearly 20 percent on year.
Although Chinese domestic crude production continues to grow, the pace is slowing to 1.7 percent in the first half to 3.84 million b/d. By comparison China’s imports are now 3.3 million b/d suggesting that soon over half of its oil consumption will be imported.
The increasing pace of energy consumption is starting to bother some Chinese scientists. Between 1980 and 2000, China quadrupled its GDP while only doubling energy consumption; yet between 2000 and 2005 the growth in energy consumption outpaced the growth in GDP.
China watchers expect that the government will move to increase interest rates or reserve requirements shortly in order to slow the overheating economy.
“The United States, which accounts for 25% of global oil consumption, still doesn't a national program to reduce demand for oil. The sad fact is that we now use 15% more oil than in 2000.”
— Jim Jubak, MSN Money