North American oil finds support in IEA projections

BIG Oil Saves The Economy!

More evidence on how big oil is giving the economy a boost was in yesterday's retail sales data. Retail sales in the U.S. unexpectedly rose in April 0.1% despite the biggest decline in gasoline sales since 2008. The reason why sales looked so bad was that U.S. demand is falling, but so too are prices. That drop in price reflected lower sales numbers that would have been up 0.7% without the gasoline drop.

The reason of course is because of the production by U.S. oil companies using new technologies, the era of high gas prices are coming to an end. Instead of retail prices surging going into Memorial Day, they are falling. The Midwest of course is still high because of refining issues. U.S. oil demand is peaking and U.S. oil supply is rising. We are seeing alternatives to gas make sense like natural gas and electric. Anyone drive a Tesla lately? Consumer Reports gave it a 99 out of 100 — a score better than any car they have tested since 1936. It is only a matter of time before other auto makers take notice and try to create a competing product.

On top of that, ethanol mandates are cutting into gas usage along with our aging population. Obviously we will see spikes along the way, but the trend for U.S gas prices may have peaked forever.  As has oil. Reuters reports that U.S. shale oil will help meet most of the world's new oil demand in the next five years, even if the global economy picks up steam, leaving the need for OPEC crude barely changed from today's levels, the West's energy agency said on Tuesday.  The prediction by the International Energy Agency (IEA) came in its closely watched semi-annual report, which analyses mid-term global oil supply and demand trends. 

"Following several years of stronger-than-expected North American supply growth, the shockwaves of rising U.S. shale gas and light tight oil and Canadian oil sands production are reaching virtually all recesses of the global oil market," the IEA said.

It said it expected global oil demand to rise 8% between 2012 and 2018 to reach 96.7 million barrels per day (bpd) based on a fairly optimistic International Monetary Fund's global economic growth assumption of between 3.0% and 4.5% a year during the period.  That incremental demand will be mainly met by non-OPEC production, which will rise by more than 10% between 2012 and 2018 to 59.31 million bpd, the IEA said, increasing its estimate of non-OPEC supply in 2017 by 1 million bpd versus its previous report in October 2012. That will leave OPEC, which had been long seen as the last resort for the world to meet rising demand, with output fluctuating around the current levels of 30 million bpd for the next five years. 

The agency cut its estimate of the demand for OPEC crude and stocks in 2017 to 29.99 million bpd, down by 1.22 million bpd from its previous report.  It said the U.S. shale oil boom and a technological revolution coming with it could help Russia and China boost their production from unconventional reserves while also probably slowing projects in North Africa as oil firms pull out due to security reasons. "Several members of the (OPEC) producer group face new hurdles, notably in North and sub-Saharan Africa. The regional fallout from the 'Arab Spring' is taking a toll on investment and capacity growth," the IEA said. "Downward adjustments across the (OPEC) group are partly offset by substantially stronger growth in Saudi capacity than previously expected, reflecting newly announced development projects," it added. However, Iran's sustainable crude production capacity was likely to fall by as much as 1 million bpd to 2.38 million bpd by 2018, the lowest in many decades, due to Western sanctions, the IEA said.

The IEA said the balance of global supply growth, until recently evenly split between OPEC and non-OPEC, was tilting towards the latter. "North America thus increases its share of supply growth both within the non-OPEC group and more globally," it added.  In every other aspect of the supply chain, be it demand, refining, trade or storage and transportation, the fast rise of emerging market and developing economies was striking, it said. These economies were projected to overtake advanced economies in oil product consumption from the second quarter of 2013. This lead will widen further, jumping from 49% of global demand in 2012 to more than 54% by 2018. The IEA said that, beyond the well-known story of growth in Brazil, China, Russia, India, Saudi Arabia and South Africa, many African nations were also on the rise on the global oil consumption map. 

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