Picking off my own thread first, that of gasoline demand, after steadily rising it has now stabilized, but at a level that wasn’t reached until April last year.
Stocks are continuing to deplete a little, so one presumes that this increase is actually being consumed, though if one looks at the stocks around the country, only the East Cost is showing a significant drop.
And while I recognize that weekly data is likely to be inaccurate, yet the trend that I mentioned last time still indicates to me that we will see a rising demand for gas in the next months, as we did, even in the face of rising prices, last year. Whether it will lead to the short peak that we saw last year, is, of course, a different question. (And yes I know that if I plot refinery inputs I would get a different curve).
Gasoline demand last week in February in kbd, by year. Source EIA
The commentary at TWIP today is more concerned with the changing forecasts that the EIA are making as a result of the changing world economy. To quote:
Our assumptions regarding the global economy are based on the IHS Global Insight macroeconomic model. In June 2008, we assumed that the world economy would grow by about 4.2 percent in 2009. In September 2008, that assumption fell to 3.8 percent growth. However, in this month’s Outlook, we assume that the world economy will decline by 0.8 percent. The events of the past several years have only highlighted the strong linkage between economic activity and oil demand growth. . . . . . Our current forecast assumes that a recovery in global economic activity begins sometime in the second half of 2009. If this timing assumption proves to be correct, then world oil prices should begin to rise gradually later this year.
They recognize that it is in the withdrawal of oil from the market, that OPEC is maintaining the price, at the level that it is. However I do not completely agree with the logic that they then apply to the future price.
While the actual path of prices may be volatile, we do not expect to repeat the sharp sustained upward price march that characterized markets from 2004 through mid-2008 given crucial differences between the oil market dynamics of then and now. First, members of the Organization of the Petroleum Exporting Countries (OPEC) currently hold roughly 4.8 million barrels per day (bbl/d) of surplus production capacity, while they held an average of 1.5 million bbl/d from 2004 to the peak of the market in 2008. Second, the lagged impact of high oil prices in recent years will continue to affect oil demand in the short term. During 2007 and 2008, WTI averaged $86 per barrel; these historically-high prices will influence the decisions that individuals and firms make going forward, which will tend to dampen the rise in world oil demand engendered by the return of global economic growth.Recognizing that, I don’t agree with their following conclusion (given in the Short Term Outlook) on price:
The annual price of West Texas Intermediate (WTI) crude oil averaged $100 per barrel in 2008. The global economic slowdown is projected to cut these prices by more than half, to average $42 per barrel in 2009 and $53 in 2010—forecasts slightly lower than last month’s Outlook.Given that we are already above that value, of course one could say it was with hindsight (though we have most of 2009 to go). Rather it is because I suspect we have soaked up most of the slack in oil demand with the drop in OPEC production and we are close to a balance. The increase in demand going into the summer will raise prices, because we are moving into the envelope where OPEC can match demand with an increase in supply, but will do so on the prices that they would prefer. And from the evidence to date, I would put that at around $65 a barrel. So that is where I think that we are heading this summer, and when one puts today’s prices with this to get an annual price I would still see it a bit north of $55.
Robert Rapier has been a little more concerned with establishing that the reports show that peak world production was actually in 2008, and not as earlier conjectured in 2005. (You need to download the table 1.1d to get the world totals). In July 2008 world production of crude peaked at 74.8 mbd. Robert feels that with the current downturn in the economy we may not see enough production from OPEC to bring world production back to this level soon, and if it doesn’t happen in three years, he doubts that it ever will. Well, prior to the recession, I had been telling folk for a while that I thought that it would be this year, but Robert’s caveat is sufficient for me to shelter under, so I will second that motion.
(And for those of you confused by the difference between this number, which is lower than the numbers in the 82 to 86 mbd range that are also quoted, Robert answers that ) in his comments:
It's the difference between 'all liquids', which ends up double-counting some fuels and just crude oil production. In the all-liquids category you may have diesel counted that was then used in the process of making ethanol (for example) and both are counted. This category also includes things like orimulsion, which is an emulsion of 70 percent bitumen and water.
As I mentioned earlier in the week, I am off to Sweden (and apparently the hotel with the noisy nightclub) this Friday and so from now on posts are going to be a little sparser on the ground since I will be working through the weekend, but I will add the usual odd comment as time permits).