Wednesday, January 26, 2011

The Mayor and the Monthly OPEC Oil Report

A couple of days ago Boris Johnson, the Mayor of London, had a column in the Biritish Telegraph about his shock at having to pay just over 80 English Pounds (EP) ($126), to fill up his Toyota Previa (at roughly $7.75 a US gallon). With the UK Treasury taking about 60% of that, he notes that the costs are likely soon (as they continue to rise) to have a significant impact o the growth of the UK economy.
It's not just that it's inflationary. If Britain's businesses cannot afford to run their vans, then they will stop hiring, they will stop expanding, and tax yields will go down. It is not just for environmental reasons but for cost reasons that I am starting physically to ache for the age of the electric car. In theory, it should all be kicking off this year. Mitsubishi, Peugeot and Smart are offering electric models this month; next month it is Citro├źn; in March, Nissan and Tata come to market, and in April we in London are launching our Source London network of charging points.
As I mentioned last week, BP does not think that the market for electric and hybrid vehicles will have a material impact of liquid fuel demand within the next 20 years. And, despite the Mayor of London putting charging points around the town, and a friend of mine telling me that condo’s in Florida are already rewriting their bye-laws so that electric car owners will be billed for charging (at present power is within the condo fee) I suspect that they may be right. But BP also said that we must, increasingly, rely on OPEC. And, since OPEC puts out a monthly report on the situation, I thought it might be interesting to look at the most Monthly Oil Market Report.

The January Monthly Oil Market report (MOMR) from OPEC aims to predict the changes in the world market this year, rather than taking the longer view of either API or BP. However, since OPEC are the folks that potentially have the additional oil to bring to the market to match the growing levels of demand, their views, even in the short term, are critical.

They do expect demand to continue to grow, and just as we saw, in their estimate, a growth of 1.6 mbd in demand in 2010, they now see an additional growth of 1.2 mbd in 2011. However, in 2010, most of the growth (1.1 mbd) came from non-OPEC sources, whereas in 2011 the growth in that supply (to an average of 87.3 mbd) is expected to be only 0.4 mbd. They see demand for OPEC crude rising to 29.4 mbd from 20 mbd, for an increment of 0.4 mbd for y-o-y average changes. Which leaves the interesting question, , as to where that additional 0.4 mbd is going to come from? And the answer is that it is expected to come from an increase in the NGL from OPEC of that volume.

The OPEC executive believe that there is some 6 mbd in spare capacity within the member countries of the organization, and that this could “quickly” be made available to the market. They see OPEC production currently totaling 29.2 mbd, but expect that while that level will be sustained as we move into the spring, end user demand will fall below that level so that stocks will rise, in the short term. (They expect second quarter demand to be the lowest of the year). Looking back at last year, they report that the largest growth in demand was for diesel, with gasoline as second.

OPEC summary of global consumption for 2010.

Interestingly OPEC notes that sales of diesel powered vehicles have risen in Europe from 22% to just over 52% of all sales in 2010, though there was a drop of around 6% in the total number of cars registered in Europe.

Part of the need for a revision in the original estimates comes from the more severe winter that has happened this winter, beyond initial predictions. This has led to higher heating fuel demands.

Change in heating degree-days as a percentage of a normal winter (OPEC)

In India, because of a switch to natural gas from fuel oil, there has been an overall drop in oil demand, and while gasoline demand held steady other fuels fell.

Changes in Indian consumption over 2010 (OPEC)

Note that the above plot shows changes in demand over the year, the total Indian consumption is around 3.3 mbd.

Consumption within the Middle East, which tends to detract from exports, was seen as rising, overall by 2.3% or 160 kbd in 2010. That may rise to 200 kbd in 2011, largely driven by increased use in Saudi Arabia.

China, consumed some 8.7 mbd in November 2010. OPEC sees that for 2011 demand will average 8.8 mbd a growth of 0.6 mbd over the 2010 annual average, ending the year with a demand of 9.34 mbd. But they admit that the growth in Chinese demand has been significantly greater than their analysts had anticipated. Car sales in 2010 were an increase of 31% over 2009 numbers (some 13 million vehicles).

And in the countries of the FSU, where oil production is significantly increasing, so also is demand, with growth in demand of 2.2% being expected for 2010, or 0.1 mbd. Overall as the world economies recover OPEC anticipates that demand will also strengthen, and has had to raise its estimate both of consumption over the past year, and that predicted, in consequence.

Turning to the growth in supply, the largest increments in 2010 came from Russia (0.33 mbd), and the United States (0.44 mbd) but in 2011 those growths will sensibly be over. OPEC are also more inclined to assess future supplies with a degree of risk assigned to the estimates, and they see the risk of the estimates for Russia being erroneous as higher than for other non-OPEC countries. And they are not optimistic, at this time, over seeing large gains in production from Azerbaijan (40,000 bd) and Kazakhstan (70,000 bd), which is where BP anticipates growth.

OPEC supply relative to global demand

OPEC noted the relative inputs of petroleum products to the United States, and (going to the EIA ) that list, for last October, is:

Origin of US imports (in thousands of barrels/day (EIA)

Imports to China were led by Saudi Arabia, at 0.88 mbd, followed by Angola at 0.81 mbd and Iran at 0.43 mbd.

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