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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Oil Prices Inch Higher Despite Rising Saudi Exports

We've had more energy-related newsflow than we can shake a stick at this week, but as we head into the weekend, hark, here is a cornucopia of crude and energy-related tidbits assembled for your perusal.

--It was a little perplexing to read a headline this week which said 'Saudi Arabia's June oil output up on domestic summer crude burning'. Saudi Arabia may have increased its production last month by 190,000 barrels per day (per OPEC direct communication), but exports increased by four times that. Hum dee dum.

The latest monthly OPEC oil market report shows that Saudi direct crude burning for power generation is down year-on-year for the last 13 consecutive months, dropping in May by 56,000 bpd YoY - or 9 percent. The latest drop is attributed to lower temperatures compared to May 2016, as well as slowing momentum in the manufacturing sector.

The Wasit natural gas plant, which is now operating at its full capacity of 2.5 Bcf/d, is no doubt part of this equation too. All this said, parts of Saudi Arabia saw record temperatures last week in central and eastern parts of the Kingdom - temperatures soared to 53 degrees Celsius for the first time on record.

--We highlighted earlier in the year how Saudi Arabia and the UAE were likely to supplement lost revenues from the OPEC production cut deal by exporting more products. We continue to see this trend play out in our ClipperData, with Middle East exports of gasoline and middle distillates outpacing year-ago levels. This may also be a positive signal, indicating stronger end-user demand for products.

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--According to the Indian Oil Ministry's Petroleum Planning and Analysis Cell, gasoline, diesel and LPG demand continued to show strength in June, underpinned by stronger economic growth. Diesel demand, which accounts for 40 percent of total product sales, is up 6.5 percent year-on-year (to 6.8 million tons).

Gasoline demand rose 12 percent (to 2.1 million tons), while LPG demand increased 16 percent (to 1.9 million tons). Offsetting this strength, petcoke, naphtha and bitumen demand fell. As the Indian economy recovers from the speed bump of demonetization at the end of last year, petroleum demand looks robust.

Related: The Major Wildcard That Could Send Oil To $120

This article suggests that Indian crude imports from the Middle East have dropped to their lowest share since 2015 - our ClipperData indicate otherwise. We saw it below 60 percent in February, when India pulled in more West African and Latin American barrels (think: Nigerian and Venezuelan crude).

(Click to enlarge)

--There were two wonderfully juxtapositioned views expressed at the World Petroleum Congress earlier this week in Istanbul. The first was from Royal Dutch Shell's CEO Ben Van Beurden, who highlighted the company's plans to invest as much as $1 billion a year by 2020 into renewables.

This contrasted with comments from Saudi Aramco's CEO Amin Nasser, who said it will invest more than $300 billion over the next decade to maintain its spare oil-production capacity and to develop natural gas resources, highlighting 'we need about 20 million additional barrels a day over the next five years' to offset rising oil demand and the natural decline at developed fields, expressing his concern that 'about $1 trillion in investments has been lost in the current downturn'.

--Peak oil has been a buzzword this week, and coincidentally, my latest feature on NPR's Texas Standard on Monday addressed the possible timing of peak oil demand - the interview can be found here.

We discussed how it was impossible to know when peak oil demand is coming - and that wide-ranging estimates only underscore this. The IEA projects its likelihood of being beyond 2040, while Royal Dutch Shell sees it as soon as mid-next decade.

France is banning the sale of gasoline and diesel cars by 2040, while Volvo is only going to design electric cars or hybrids after 2019, while Rolls Royce is skipping building hybrids, and shifting straight to creating electric cars. The chart below illustrates that, according to Bloomberg, electric vehicles are set to account for all the growth in global vehicle sales within a decade:

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--The IEA has been busy this week. The chart below is from their publication about natural gas, in which it highlights that China, India and other developing countries will import more than 50 percent of global LNG volumes by 2022.

Related: Will The EV Hype Actually Help The Oil Business?

Global gas demand is expected to grow by 1.6 percent per annum to 2022, with global consumption reaching 4,000 Bcm at this point. China is projected to account for 40 percent of this growth. The U.S. is projected to account for 40 percent of global natural gas production growth over the same period, accounting for more than a fifth of global gas output by 2022.

(Click to enlarge)

--Finally, the below chart is also from the IEA, and has been grabbin' headlines this week, as it highlights the passing of a milestone: global electricity investment overtaking the investment in fossil fuel supply last year.

But as the chart below illustrates, this is less to do with rising investment in the electricity sector, and more to do with tanking investment in fossil fuel supply. Capital spending in the fossil fuel supply sector has fallen 38 percent in the last two years. Energy investment on the whole in 2016 was down 12 percent on the prior year.

(Click to enlarge) 

By Matt Smith

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