Hess CEO Sees Global Oil Supply Crunch Looming 03/06/17 •lweb.es/f2714 •bit.ly/2okjF1o
A significant, years-long oil supply crunch may be approaching due to insufficient investment in exploration and production, Hess CEO John Hess said at the IHS CERAWeek, and this will begin showing up in declining offshore supply. He added that “The shale business is back in business and starting to grow again,” but such growth in US shale would not be enough to meet global oil demand, which the International Energy Agency has projected to grow between 1.4-1.6 million barrels a day over this year and the next.
According to BP, electric vehicles are not likely to be a game changer for the growth of oil demand over the next 20 years where the increasing prosperity in emerging Asia is likely to swamp the impact of even a very rapid increase in electric cars. In fact, there may well be more cost effective methods of reducing CO2 emissions over this period, for example greater improvements in vehicle efficiency, a switch away from coal in the power sector, or increased investment in Carbon Capture and Storage. But these considerations should not detract from the many potential benefits that electric vehicles may bring.
Latin America is leaping ahead into a renewables-led future: Chile is currently the leader of this pack, but Brazil has moved fast on capturing and exploiting the growth in renewable energy markets. In Africa, Egypt is one of the most attractive destinations in the renewables market, whilst Kenya is eager to be a regional clean energy leader and geo-thermal superpower. In Asia, the push for a giant leap towards renewable energy in Taiwan has come all the way from the top of the government, thanks to the President’s de-nuclearization policy.
Wood Mackenzie’s global corporate outlook for 2017 forecasts that the oil and gas industry will turn cash flow positive for the first time since the downturn, if OPEC production cuts drive oil prices above $55 a barrel. Focus is on five themes: strengthening finances as a top priority; U.S. Independents to lead the sector into a new investment cycle; portfolios will adapt, down the cost curve and into new energy; modest growth in production despite past capex cuts; and an improved value proposition for exploration and mergers and acquisitions.
According to the International Energy Agency, in 2015 coal power plants produced close to 39% of the world’s power, whilst renewables – including hydroelectric dams – accounted for 23%. However the IEA expects that number to climb to 28% by 2021, when renewables will supply the equivalent of all the power produced currently in the US and the EU combined. The IEA sees renewables growing 13% more between 2015 and 2021 than it did in its previous year’s forecast, due mostly to “stronger policy backing in the United States, China, India and Mexico.” 
The International Civil Aviation Organization (ICAO) announced the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), designed to serve as a global market-based measure to control increases in CO2 emissions from international aviation operations. CORSIA will increasingly require international airspace users and others to measure, verify and report their greenhouse gas emissions to ICAO. CORSIA’s main goal is to allow operators to offset unavoidable aircraft emission growth with a reduction in activities elsewhere by allowing operators to buy carbon credits and outsource the process of reducing emissions.
The oil market has experienced structural changes since prices peaked in June 2014. Prices have been driven down by supply-side factors that are principally increased production from U.S. shale and Saudi Arabia’s market share defence. At the same time operational efficiency has been increased, as for example with the companies in the U.S. shale areas, thus begging the question of whether OPEC still matters. Within this context of change it looks to be that the conventional wisdom with regard to the global oil market no longer applies. 
OEF REVIEW:According to the IEA the oil glut in global oil markets will persist into late 2017 as demand growth slumps and supply proves resilient. Stocks of oil in OECD countries are swelling to levels never seen before. The combination of faltering demand and increased OPEC output pushed oil inventories in developed nations to a record in July. BNP Paribas considers that “OPEC’s long game got a little longer”, and also with regard to OPEC Petromatrix GmbH says that the organization is “trapped” since “Non-OPEC supply has been able to adjust better than expected to the lower oil prices.” 
OEF REVIEW:Crude could return to $100 a barrel because the two-year market downturn has curbed investment. Except during the financial crisis in 2008, average Brent prices increased every year from 2002 to 2012, and topped $100 a barrel from 2011 to 2014 and leading companies into higher-costs projects and capacity building that outstripped demand leading eventually to a collapse in prices. 
OEF REVIEW:According to the U.S. Energy Information Administration (EIA) world tight oil production is expected to more than double between 2015 and 2040, increasing from 4.98 million barrels per day in 2015 to 10.36 million barrels per day in 2040. Most of the projected increase will come from the United States, with much of the rest coming from countries such as Russia, Canada, and Argentina. U.S. tight oil production is expected to reach 7.1 million barrels per day in 2040. Tight oil production in Canada will continue to decline until 2020, and then increase over the rest of the projection period, reaching 0.76 million barrels per day in 2040. Argentina is still in the early stages of commercial tight oil production, but projections are that production will double from 2015 to 2020 and will reach 0.69 million b/d in 2040. Russia, Mexico, Colombia, Australia, and other countries that hold large technically recoverable tight oil resources are expected to contribute 18% of the projected total world tight oil production by 2040.
OEF REVIEW:Oil investors are buying contracts that will only pay out if crude oil rises well above US$100 a barrel over the next four years – a clear sign some believe today’s bust is sowing the seeds of the next boom. The options deals, which brokers said bear the hallmarks of trades made by hedge funds, appear to be based on the belief that current low prices will generate a supply crunch. Over the last month, investors have bought call options for late 2018, 2019 and 2020 at strike prices of US$80, US$100 and US$110 a barrel. Previously, some investors had already built super-bullish positions. The options deals suggest a concern about shortages as demand begins to outstrip production – the traditional boom and bust commodities cycle.
OEF REVIEW:India’s fuel markets could be a lucrative prize for the world’s oil majors as they seek outlets for their gasoline and diesel. India posted the fastest oil demand growth in the world in the first quarter of 2016 and is replacing China as the driver of growth globally, the International Energy Agency said in its latest report. Fuel marketing in India has turned profitable after the government ended decades-old control over the retail prices of gasoline and diesel, and local private oil refiners Reliance Industries and Essar Oil have started opening their mothballed fuel stations, adding new ones to expand business. India recently offered Saudi Aramco a stake in refineries and petrochemical projects; Total and Royal Dutch Shell are also keen to strengthen their presence in the fuel retailing business; BP could market jet fuel in the country; and Rosneft may take up a 49% stake in Essar Oil’s in a 49% 400,000 barrels per day Vadinar refinery in western Gujarat state. 
OEF REVIEW:Technical analyst Clive P. Maund lists the reasons he believes oil prices, which recently peaked above $50 a barrel, are headed for a fall: “It still looks like oil is topping out here at about the $50 level after its substantial recovery uptrend from its February low. While we cannot be sure until it breaks down from its uptrend, the chances of its doing so soon look high for various reasons.”