Friday April 14, 2016
In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.
Let’s take a look.
1. Oil demand slips
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- The IEA downgraded its projection for global oil demand growth for 2017, expecting an annual increase of 1.3 mb/d compared to 2016, down from the last month’s projection of 1.4 mb/d.
- Demand in the U.S. and Japan was actually lower in the first quarter compared to a year earlier, and growth in places like Russia, Korea and the Middle East is now slower than previously expected.
- China still posted a 430,000 bpd increase in the first quarter, year-on-year.
- But India, a country that has been billed as the largest source of future demand growth, was disappointing. A debacle with India’s currency reform has hit economic growth and first quarter oil demand was flat compared to a year earlier.
- The IEA even said the 1.3 mb/d estimate could prove to be too optimistic.
- Slow demand could delay the oil market rebalancing, and delay any price gains.
2. But oil market already in supply deficit?
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- Despite slowing demand growth, the IEA said in its latest report that “it can be argued confidently that the market is already very close…
Friday April 14, 2016
In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.
Let’s take a look.
1. Oil demand slips

(Click to enlarge)
- The IEA downgraded its projection for global oil demand growth for 2017, expecting an annual increase of 1.3 mb/d compared to 2016, down from the last month’s projection of 1.4 mb/d.
- Demand in the U.S. and Japan was actually lower in the first quarter compared to a year earlier, and growth in places like Russia, Korea and the Middle East is now slower than previously expected.
- China still posted a 430,000 bpd increase in the first quarter, year-on-year.
- But India, a country that has been billed as the largest source of future demand growth, was disappointing. A debacle with India’s currency reform has hit economic growth and first quarter oil demand was flat compared to a year earlier.
- The IEA even said the 1.3 mb/d estimate could prove to be too optimistic.
- Slow demand could delay the oil market rebalancing, and delay any price gains.
2. But oil market already in supply deficit?

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- Despite slowing demand growth, the IEA said in its latest report that “it can be argued confidently that the market is already very close to balance.”
- OECD crude oil stocks declined slightly in February and March, after an enormous build in January.
- But “less visible” crude oil storage – in the Caribbean, South Africa and on floating storage, for example – actually declined by nearly 30 million barrels in the first quarter.
- The latest EIA data showed a draw in U.S. stocks, although they are still at record highs.
- Taken together, there is some evidence that a supply deficit has already emerged, with stocks starting to draw globally. A few more weeks of data could bolster this case.
3. Venezuela’s debt problem

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- Amid rising speculation of a possible default, Venezuela’s state-owned oil company PDVSA met a $2.5 billion debt payment to its creditors this week.
- The Venezuelan government and PDVSA are running low on cash as the country’s economic crisis deepens. The state reportedly had $10 billion in cash reserves before this week’s payment.
- But even as it avoided default, debt payments later this year could pose a challenge, particularly with hefty sums due in October and November.
- Investors are putting the odds of a default within the next year at 56 percent.
- Venezuela is expected to lose roughly 10 percent of its oil production this year due to aging fields, lack of investment, the decrepit state of its infrastructure, and the inability to pay for imported diluent to dilute its heavy oil. But the uncertainty of the economic calamity the country finds itself in presents greater downside risk to its output.
4. Solar pushes power prices negative

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- Utility-scale solar accounted for nearly 40 percent of total electricity generation on California’s grid during the hours of 11:00 a.m. and 2:00 p.m. on March 11, the highest portion for solar ever reached in the state.
- Because solar PV generates power during the middle of the day, power prices are sometimes pushed into negative territory due to a surplus of electricity generation.
- California has over 14 gigawatts of solar capacity, a figure that has climbed quickly in recent years. Between 2013 and 2015, the system had mid-day power prices in March that did not run negative – they ranged from $14/MWh to $45/MWh. But the surge of solar installations since then has the state struggling to keep up.
- The next step for grid management is to integrate energy storage into the mix so that there isn’t a glut of electricity in mid-day and much less capacity at night.
5. LNG markets still a bust

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- LNG prices continue to wallow at multi-year lows, with spot prices in Asia dropping to $5.65/MMBtu, far from the heights of $20/MMBtu back in 2014.
- That has upended a lot of the calculation from LNG exporters, who had scrambled to build export terminals to take advantage of the sky-high prices in Asia.
- The glut for LNG is arguably as bad as or worse than it is for oil, and it could take years to clear.
- This is good news for buyers however, who are banding together to form a “buyer’s club”, using their leverage to squeeze producers into offering concessions.
- The result could be fewer long-term contracts, lower prices, more reselling of cargoes, a larger spot market, and more liquidity. In short, the ingredients for a true global market for LNG are coming together.
6. China's oil production is falling

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- China’s aging oil fields require constant investment and maintenance, but the collapse of oil prices since 2014 forced some of the Chinese state-owned oil companies to slash investment and, in some cases, to abandon old fields.
- The three largest companies, PetroChina, CNOOC and Sinopec cut spending on oil investment by 40 percent over the two-year period of 2015-2016.
- In 2016, China’s oil production fell by a staggering 11 percent, dipping by 480,000 bpd to just 3.8 mb/d. It rebounded a bit, and after two years of spending cuts, the state-owned companies are increasing spending this year.
- But that won’t halt an ongoing slide in output. China could lose another 200,000 bpd in 2017. This will add some bullish pressure to the market – China’s demand is rising and its production is falling, and any dip in output will have to be made up by higher levels of imports.
7. Oil majors’ reserve life declining

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- Struggling to find and replace the oil that they produce each year, the reserve life for the oil majors is on the decline.
- The collapse of oil prices since 2014 has led to a severe slowdown in exploration spending, leading to a dearth of new discoveries. The majors have posted several years of lower than a 100 percent reserve-repayment ratio, meaning they extracted more oil than they discovered.
- ExxonMobil’s (NYSE: XOM) reserve life declined to just 13 years, down from 17 in 2014. That is the lowest level for the supermajor since 1997.
- Royal Dutch Shell’s (NYSE: RDS.A) reserve life declined from 12 years in 2014 to just 10 years as of 2016. Strikingly, however, that came even though Shell spent $50 billion to takeover BG Group.
- For now, shareholders are not punishing the majors, pressuring the companies to use cash to give to investors rather than invest in future growth.
That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.