Reading this week's International Energy Agency report would give little comfort to any market bears. There is virtually nothing in there that would lead one to believe that oil prices are going down soon. A few observations:
--Although the data on countries making up the OECD -- the main western economies, plus such countries as Japan, South Korea and Australia -- show that demand in those nations remains flat, high prices are not having the same impact in non-OECD countries, which are reporting revised, higher demand projections for 2006 and 2007. Now, one of the reasons for that is that old data is coming in showing 2005 demand was more than the IEA had thought, so the base is now higher. But year-on-year figures 2007 to 2006 still show solid growth.
--For several years in the recent past, what the IEA refers to as the call for OPEC crude -- which is basically projected demand minus non-OPEC production minus OPEC NGL production -- was generally below OPEC production. Not anymore. Platts reported May production for all 12 OPEC members, including Angola, was just under 30.3 million b/d, the highest it had been in many months. But the average call for the third quarter is 31.5, and for the fourth quarter 32.3. The world also drew stocks in the first quarter after building in the corresponding quarter of the two prior years. Further, stocks built only a bit in April, which is the first month of the traditionally weakest demand quarter when stocks shold be built for the stronger third and fourth quarters. The end result of all this is that the IEA sees big stock draws in the third and fourth quarters from a base that has not built this year.
--Some peak oil theorists say world crude production peaked in May 2005. And you can read parts of the report as confirming that. In the second quarter of 2005, total non-OPEC supply -- that's everything, crude, NGL, biofuels, etc. -- was 50.6 million b/d. OPEC crude output was 29.7 million b/d, for total supply of 80.3, a figure that does not include OPEC NGLs. In the second quarter of this year, even with a growth in biofuels of 300,000 b/d, non-OPEC supply is projected to be 50 million b/d, a drop of 600,000 b/d in two years, which reveals a significant drop in non-OPEC crude output given the rise in biofuels. If OPEC crude supply in the second quarter holds at its first quarter figure of 30.2 million b/d, that's total world supply, without OPEC NGLs, of 80.2 million b/d, less than the figure of the second quarter of 2005. And it's that quarter that includes May, which the peak oil theorists point to as a high-water mark.
The Barrel was on a panel on CNBC this week to debate the question: which comes first, $50 or $70? There was no debate. It was 4-0, for $70. And of course, the discussion focused on WTI, which is artificially depressed at present. By contrast, Brent already has been there.
Well, we can see the oil prices, and I really don't know when it takes back, I think the big companies need to re-plan the way to produce oil and use a biofuel with the normal fuel to make more cheap the process and better world. Remember, we only have one world, and the normal process is not good for it. And start to think not only in makihng money, but think in the people who use their products.
Tnx.