Oil Supply Concerns Trump Sagging Demand

- January 23rd, 2012

Supply concerns dogging major producers have kept both Brent crude and WTI above $100 per barrel to begin the year.

By Robert Sullivan – Exclusive to Oil Investing News

Oil Supply Concerns Trump Sagging Demand

Despite indications from the International Energy Agency (IEA) that global oil demand is falling for the first time since the 2008-2009 economic downturn, a host of supply concerns have kept crude oil prices above $100 per barrel for the first three weeks of the year.

In a monthly report released on January 18, the IEA cut its forecasted demand growth for 2012 by 200,000 barrels per day (bpd) to 1.1 million bpd citing “clear signs of economic weakness” that had already seen year-on-year demand in Q4 of 2011 drop by 300,000 bpd.

Shrinking demand and a gloomy outlook for the US and European economies would typically be expected to pull down crude oil prices, but a number of supply concerns dogging major producers have kept both Brent crude and West Texas Intermediate (WTI) above $100 per barrel since the beginning on the year.

Iran

With US sanctions on the Central Bank of Iran in place, and EU sanctions on oil imports forthcoming, it appears that Iranian oil will soon be removed from its major markets in Europe, Japan, and South Korea.

Although some analysts have noted that China and India could comfortably take on most of Iran’s diverted output, this still leaves some of the world’s largest economies in need of supplies from elsewhere to compensate for their lost Iranian imports.

Saudi Arabia, which has enough spare capacity to replace all of Iran’s current exports of 2.2 million bpd, could also keep oil prices in check says Fariborz Ghadar, a senior adviser at the Center for Strategic and International Studies.

Speaking to CNN, Ghadar remarked that “there’s not going to be much of an impact if the Saudis and others are willing to jack up production.”

But OPEC’s spare capacity now sits at less than 3 million barrels per day (bpd), down from close to 4 million bpd at the beginning of 2011, and a further reduction could push oil prices higher even if demand is covered.

Nigeria

Nigeria, meanwhile, is mired in internal conflict that some believe could boil over and affect the country’s 2.5 million bpd of output.

With ongoing violence in the North, and a nation-wide backlash over the removal of fuel subsidies, doubts have once again surfaced about the stability of Africa’s most populous nation.

In the face of fierce protests, the government reinstated part of the fuel subsidy to cut gas prices by one-third, but David Kotok, Chief Investment Officer of Cumberland Advisors, told CNBC on January 17 that “”Jonathan went too far on the gas price.”

“If he backs down, he is a weakened president. If he doesn’t, he will face huge unrest. He cannot win now. The situation is explosive and very bad for the oil importing nations,” Kotok added.

Sudan

Recent developments in Sudan may also soon have an impact on oil markets, as South Sudan announced on January 20 that it was planning to halt oil production.

The move stems from accusations that Sudan has started seizing southern crude and demanded $32 per barrel in transport fees on shipments from South Sudan through its territory.

South Sudan inherited nearly three-quarters of Sudan’s 490,000 bpd output when it seceded last year, but most of this could be taken off of international markets as soon as next week if South Sudanese president Salva Kiir and his Sudanese counterpart, Omar al-Bashir, are unable to diffuse mounting tensions when they meet in Ethiopia on January 27.

Keystone XL rejection

Oil markets will also be digesting an announcement from US President Barack Obama on January 18 that TransCanada Corp.’s (TSX:TRP) would be denied a permit for its proposed Keystone XL pipeline expansion.

The decision came before a February 21 deadline set by the US Congress, but a final verdict on the pipeline will still be made in 2013.

But despite the setback, many analysts still believe the project will eventually be given the green light from the US government.

John Stephenson of First Asset Management Inc. remarked to Bloomberg on Friday that “this is clearly the biggest infrastructure project on the continent, and once the election is settled, we believe it will be approved.”

 

Disclosure: I, Robert Sullivan, hold no direct investment interest in any company mentioned in this article.

 

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18 responses to “Oil Supply Concerns Trump Sagging Demand

  1. I dont mind breathing firewood smoke once or twice a year but not daily . My neighobrs burn firewood daily and it is endangering my health and our health costs are going up because of firewood smoke PM2.5 and PM 10 inhalations…  EPA is softpedaling on the brake… EPA,  brake it hard now!

  2. I dont mind breathing firewood smoke once or twice a year but not daily . My neighobrs burn firewood daily and it is endangering my health and our health costs are going up because of firewood smoke PM2.5 and PM 10 inhalations…  EPA is softpedaling on the brake… EPA,  brake it hard now!

  3. people are still thinking like “why bother after all we hold oil and gas stocks ?? ” Why not maximize earnings at any costs despite finite supplies.. this is the very wrong attitude we have to fight and stop at once. This is no funny game anymore!  Look around and can you see what oil and gas had done to our economy already..  messed up!  Oil and gas is a huge industry and prices had doubled in last ten years and it was enough to mess up our economy , really!   same goes for heatlh care industries going up in premiums because we still breath polluted air that is easily preventable with strict PCV inspections in all cars as well as permanent firewood ban for all heavy users of firewood … We must cut firewood consumption by 95%…

  4. people are still thinking like “why bother after all we hold oil and gas stocks ?? ” Why not maximize earnings at any costs despite finite supplies.. this is the very wrong attitude we have to fight and stop at once. This is no funny game anymore!  Look around and can you see what oil and gas had done to our economy already..  messed up!  Oil and gas is a huge industry and prices had doubled in last ten years and it was enough to mess up our economy , really!   same goes for heatlh care industries going up in premiums because we still breath polluted air that is easily preventable with strict PCV inspections in all cars as well as permanent firewood ban for all heavy users of firewood … We must cut firewood consumption by 95%…

  5. We need solar home furnaces now like pronto that will help reduce heating oil and natural gas as well as electric heating..   It is a very simple solar product that needs to be taiilored to fit every living unit as appprorpriate per the direction of sunlight as such.   Mirrors will be extensively used to concentrate sunlight several time fold to achieve toasty warm cozy 120 degree F heated air going through windows or skylights.. We can boost folds of sunlight up to 20 or 50X for concentrated gas like hot furnace exhangers that can be used for central air conditioning systems already in place.. We can switch between fossil fuels or concentrated sunlight as the weather permit.  Just add a shunt of duct for that solar furnace .. Concentrated sunlight can be as hot or even hotter than natural gas or heating oil.when the sun shines..  for free.. We will be seeing a lot of mirrors unfolding and folding out of sight as needed. Of course , it will be powered by photovoltaics for folding open the mirrors. We dont need to string powercords to the mirrors for unfolding.

  6. We need solar home furnaces now like pronto that will help reduce heating oil and natural gas as well as electric heating..   It is a very simple solar product that needs to be taiilored to fit every living unit as appprorpriate per the direction of sunlight as such.   Mirrors will be extensively used to concentrate sunlight several time fold to achieve toasty warm cozy 120 degree F heated air going through windows or skylights.. We can boost folds of sunlight up to 20 or 50X for concentrated gas like hot furnace exhangers that can be used for central air conditioning systems already in place.. We can switch between fossil fuels or concentrated sunlight as the weather permit.  Just add a shunt of duct for that solar furnace .. Concentrated sunlight can be as hot or even hotter than natural gas or heating oil.when the sun shines..  for free.. We will be seeing a lot of mirrors unfolding and folding out of sight as needed. Of course , it will be powered by photovoltaics for folding open the mirrors. We dont need to string powercords to the mirrors for unfolding.

  7. More oil we produce, the more we seem to waste oil.. So lets slow down oil production with conservation and driving habits like more carpooling and vanpooling until we are sure that we have hit the bottom in demand patterns which is still way down!  We can get by on half the production today. We waste way too m uch oil !!  This is also a good time to boom up solar energy where it can offset fossil fuel demands .. We cannot use supply and demand mechanisms on oil and natural gas because they always keep on going up in price no matter what apparently because of finite supplies.. We have no choice but to boom solar energy on top of wind power and what nots..  We have to muzzle oil and gas companies for the time being.. Coal is different because of its abudnant reserves… The world need more coal to replace far worse firewood and its associated smoke that is bad for world health.  We need international rural electrification like we did here in America a century ago.. Clean air is still scarce around here.

  8. More oil we produce, the more we seem to waste oil.. So lets slow down oil production with conservation and driving habits like more carpooling and vanpooling until we are sure that we have hit the bottom in demand patterns which is still way down!  We can get by on half the production today. We waste way too m uch oil !!  This is also a good time to boom up solar energy where it can offset fossil fuel demands .. We cannot use supply and demand mechanisms on oil and natural gas because they always keep on going up in price no matter what apparently because of finite supplies.. We have no choice but to boom solar energy on top of wind power and what nots..  We have to muzzle oil and gas companies for the time being.. Coal is different because of its abudnant reserves… The world need more coal to replace far worse firewood and its associated smoke that is bad for world health.  We need international rural electrification like we did here in America a century ago.. Clean air is still scarce around here.

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