Peak
Oil or Not?
By
Andrew McKillop
The 4th quarter of 2007 will be an acid-test for this key
question. If PO has
arrived it will show as physically under-supplied consumer
markets, and be
measured by indicators like stocks draws continuing to rise,
and days of average
consumption represented by crude and oil product stocks continuing
to fall, in major importer and consumer countries.
Naturally prices would not go sideways or fall as they ‘traditionally’ do
at
the end of the Summer airtravel and driving season and before
the Winter
heating season starts – if it starts.
Climate changed warmer winters have also played a big part
in making
Summer oil demand peaks bigger and Winter peaks smaller and
later in
the year. Another factor, for the US market, is the role
of WTI (West Texas Intermediate)
crude oil as the world reference pricing benchmark for traded
crude, that is the approximately 55% of all oil supply that
is traded, of which
about 70% is still settled in US dollars.
WTI has in the months of July-August 2007 shown price swings
almost
comparable to US equity gyrations in the ‘credit crunch’ or ‘housing
debt
crisis’ that wracks equity markets since mid-August.
From being an overvalued or ‘premium price’ crude,
WTI fell to more than 6
US dollars below the price of its Euro rival, Brent crude,
before roaring back
to command a small premium, in late August.
REGION
July 2007 |
DEMAND
Million
bbl/day |
SUPPLY
Million
bbl/day |
PERCENT
World Total
Demand |
PERCENT
World
Total Supply |
| FSU
Eurasia |
5.2 |
12.8 |
5.8 |
15.1 |
| Middle
East + Former Sov Central Republics |
8.5 |
29.9 |
9.8 |
34.2 |
| Europe
29 |
13.8 |
5.8 |
15.8 |
6.8 |
| ABOVE
THREE Brent-Dubai related |
27.3 |
48.5 |
31.4 |
56.1 |
| Asia-Pacific
Brent-Dubai related |
25.1 |
7.5 |
28.7 |
8.9 |
| ABOVE
FOUR Brent-Dubai related |
52.4 |
56
|
60.1 |
65 |
| North & South
America WTI related |
31.4 |
19.7 |
35.9 |
23.3 |
| USA
only WTI only |
21 |
7.5 |
24.1 |
8.9 |
| ABOVE
FIVE |
83.8 |
75.7 |
96 |
88.3 |
| Africa
WTI and Brent-Dubai related |
3.5 |
8.9 |
4 |
10.5 |
| ABOVE
SIX |
87.3 |
84.6 |
100 |
98.8 |
Unreported
production + refinery gains
+ stock draws |
|
2.7 |
|
3.1 |
During that time it also gained plenty of dollars-per-barrel,
the same way that Brent and its related crudes – notably
Dubai traded Omani benchmark crude (called ‘Dubai’)
and related Middle East crudes.
WTI, in brief, was revealed as an unrepresentative crude for
benchmarking world supply and trading, and now has second-rank
to Brent-Dubai crudes in setting world prices.
When they go up WTI will follow, but if WTI goes up, or down,
it is not sure and certain these “Eurasian” crudes
have to follow, as they previously did. Brent-Dubai crudes
track demand and supply changes in a far bigger spread of countries
and regions worldwide – as the Table above shows. It
also shows clearly which regions are the net suppliers and
exporters, and which are the importers.
The specially import-dependent status of the USA stands out
from this data, while the biggest-possible definition of “
Asia” to also include the FSU (Former Soviet Union) and
the CSR or southern central Asian muslim republics is easily self-sufficient,
even if oil-hungry Europe is added as a western extension of “Asia”.
Taking it out of the box, Asia becomes a world-region that
has no particular oil problem – for the moment. Any growth at
all in African oil demand – for example – will
surely intensify PO-driven oil price rises…
For the USA and Europe that moment is now, or approaching very
fast. If we hit PO this Winter (if we have winter),
there will surely be no repeat of oil prices sliding, for a
few days below 50 USD/bbl, for both Brent and WTI, in January
2007. A price floor will be set, likely in the region of 67.50 – 70
USD/bbl with at least some potential, in July 2008, of hitting
the much forecast but legendary “triple digit
barrel” of $ 100.
Andrew
McKillop is Senior Energy Strategist in Juno Mother Earth
Asset Management. Petroleumworld not necessarily share these
views.
Editor's
Note: This commentary was originally published in Juno
Newsletter, September 17, 2007 by Juno Mother
Earth Asset Management. Petroleumworld
reprint this article in the interest of our readers.
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