1. Production and Prices
2. The Next OPEC Meeting
3. Troubles in China Continue
4. Energy Briefs
The International Energy Agency is reporting that worldwide total liquids production increased in December by 450,000 b/d to a new high of 87 million b/d. The US’s EIA estimates that October crude and concentrate production reached 74.1 million b/d which is still below the May 2005 production of 74.3 million b/d. The tanker-tracker firm, Petrologistics, reports that January OPEC production was 100,000 b/d higher than in December.
Once again, oil prices moved with prospects for a recession. Early in the week prices rose as traders hoped that the Federal Reserve would be able to halt or mitigate a recession through interest rate cuts. On Thursday and Friday, however, oil dropped 4 percent to settle at $88.96 as bad economic news and a jump in US crude and gasoline stockpiles overshadowed an OPEC decision to keep production at current levels.
The US stockpiles report on Wednesday showed that US refineries continued to decrease production to 85% of capacity for winter maintenance. This allowed crude stockpiles to increase, but resulted in lower production of gasoline and distillates. Gasoline imports were unusually high in January, but are likely to decline in February and March as European refineries close for maintenance.
Distillate production fell to 3.9 million b/d last week and imports were 277,000 b/d. This resulted in another decline in distillate stocks which usually fall at this time of year because of wintertime demand for heating oil.
Even before the February 1st OPEC meeting had taken place, attention had already shifted to the meeting scheduled for March 5th. Torn between strident calls from the OEDC for a production increase to lower prices and possibly forestall a recession and fears of what a recession would do to the demand for oil, the OPEC ministers simply did nothing. OPEC’s ability to increase production significantly and on a sustainable basis was obviously part of OPEC’s calculus, but such considerations are rarely mentioned in public.
OPEC seems more concerned about the possibility of a recession than Wall Street which recently has been ignoring a steady stream of bad economic news and rallying on the prospects of the Federal Reserve’s efforts to mitigate the situation. Oil prices now are down by more than ten percent from the highs of a few weeks ago. Some experts warn that the US economic problems may lead to more than a mild recession, suggesting that the current slowdown could evolve into worldwide economic problems lasting for many years.
Whether the situation will be clearer a month from now is impossible to say. The demand for oil from China, India, and from within the oil-producing states continues to climb rapidly. These countries should continue to grow for awhile no matter what happens in the US and the world economy. Even if the US is headed for serious economic problems, it may be many months before the demand for oil slows significantly in the major importing countries.
On the other side of the ledger, we are entering the period between the winter heating and the summer driving season when demand typically slackens and stocks typically build. During the next year or two, a number of new oil production projects are expected to come on-stream increasing the availability of oil. Taken together these forces leave the immediate future for oil prices unusually murky.
For a second week, the worst snow storms in 100 years across southern China remained the world’s top energy story. Over 100 million people have been affected by the electricity, coal, food, and water shortages. The government estimates that total economic damage caused by the storm totals $7.5 billion dollars. Over 1 million homes have collapsed or been damaged by the snow and 2.5 million people have been evacuated. The port at Shanghai is closed, stranding more than 1000 ships, and 8000 train trips have been delayed or cancelled.
It is too early to assess the implications of the bad weather on China’s demand for oil. Energy consumption has ground to a halt in much of the country as the power is off and nothing can move over snow-clogged roads. Coal exports have been halted and the major coal mines have been ordered to continue production over the Chinese New Year’s holiday.
While the direct effects of the heavy snows will only last a few weeks, the government is already raising concerns about serious crop damage in the south where much of the nation’s food is grown. Food is already in short supply and the government is saying that the CPI grew 6.5 percent in January. The government is moving to cap price increases for foods which may lead to more shortages.
China’s efforts to increase production of oil products in response to the shortages which arose last fall resulted in new highs for petroleum refining. Preliminary figures show that China processed 6.87 million b/d of crude in December surpassing the previous high reached in June 2007 by four percent. Despite the weather problems and the looming recession in the US, Beijing is still forecasting that China’s economy will grow by 10.5 percent in 2008 suggesting that the demand for oil imports will continue to grow.
(clips from recent Peak Oil News dailies are indicated by date and item #)
"OPEC remains concerned about a potentially deep recession in the US, which could reduce demand growth for energy and until this becomes clear the group is unlikely to make any significant policy shifts."
—Oil analyst Andrey Kryuchenkov