• 4 minutes Is $60/Bbl WTI still considered a break even for Shale Oil
  • 7 minutes Oil Price Editorial: Beware Of Saudi Oil Tanker Sabotage Stories
  • 11 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 15 minutes Wonders of Shale- Gas,bringing investments and jobs to the US
  • 1 hour Apartheid Is Still There: Post-apartheid South Africa Is World’s Most Unequal Country
  • 2 hours Evil Awakens: Fascist Symbols And Rhetoric On Rise In Italian EU Vote
  • 21 mins Total nonsense in climate debate
  • 34 mins IRAN makes threats, rattles sabre . . . . U.S. makes threats, rattles sabre . . . . IRAQ steps up and plays the mediator. THIS ALLOWS BOTH SIDES TO "SAVE FACE". Then serious negotiations start.
  • 22 hours IMO 2020 could create fierce competition for scarce water resources
  • 12 hours Theresa May to Step Down
  • 1 day Devastating Sanctions: Iran and Venezuela hurting
  • 1 day IMO2020 To scrub or not to scrub
  • 3 hours Will Canada drop Liberals, vote in Conservatives?
  • 1 day Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 4 hours Trump needs to educate US companies and citizens on Chinese Communist Party and People's Liberation Army. This is real ECONOMIC WARFARE. To understand Chinese warfare read General Sun Tzu's "Art of War" . . . written 500 B.C.
  • 4 hours Canada's Uncivil Oil War : 78% of Voters Cite *Energy* as the Top Issue
  • 1 day Level-Headed Analysis of the Future of U.S. Shale Oil Industry

Renewables Already Limit Upside For Oil

Renewables

Your author is a firm believer in the idea that sentiment- rather than fundamentals- drives market prices in the short term. That’s why our notes tend to obsess over sentiment measures like hedge fund positioning, options markets and time spreads instead of longer term supply and demand balances. As Lord Keynes once put it- “the market can stay irrational longer than you can stay solvent.”

You often get more bang for your buck as a trader if you can accurately gauge the temperature of the herd as opposed to having prescient calls related to fundamentals or geopolitics. Nevertheless, we still need to work to have as good an understanding as we can on long term oil market themes and were excited as always when BP recently released their comprehensive Energy Outlook for 2019 last week. After a not so quick read, the trend which most interested us was the discussion of renewable energy and electric vehicle market penetration in the context of what we view as short term bearish issues with US gasoline demand growth.

BP sees renewable energy supplying about 4% of total energy today and expects that figure to reach 15% by 2040. The company also argues that renewables will become the largest source of power generation by 2040. To paraphrase BP Chief Economist Spencer Dale, this would represent the fastest penetration of the world’s energy system of any fuel in history.

Just for fun, let’s assume that BP’s forecast is ultimately correct. At first glance, 4% of current energy supply and just 15% in the next twenty-one years may not seem like a terrible threat to anyone with natural length in oil. Unfortunately, BP’s report also sees global oil demand peaking near 108m bpd near 2030 (currently running 100.0m bpd) suggesting meager growth for the next decade. If renewables penetrate the market at a rate of about +0.5% per year through 2040 while global oil demand grows less than 0.5% per year what sort of scenarios does that create for oil price risk?

We’d argue one with increasingly small potential for 2008-style ‘scarcity fear’ rallies which are built on the perception of runaway demand growth and exacerbated by supply challenges. This certainly doesn’t mean that crude prices won’t top $75, but it will drastically reduce the likelihood of a +$100/bbl spike. In the U.S., gasoline consumption + exports have achieved growth of just 0.6% and 1.4% over the last two years and…




Oilprice - The No. 1 Source for Oil & Energy News