Commodities | Nov 13 2006
By Greg Peel
The International Energy Agency foresees an energy future that is “dirty, insecure and expensive”, UBS reports. The governments of the world are doing a lot of talking about how to tackle problems of energy demand, carbon emissions and climate change, but there is little direct action to date.
Weekly US oil data show that the downstream inventory surplus is “all but gone”, notes UBS. Diesel and gasoline stocks are now in deficit versus 5-year average demand cover.
The oil market is currently in two minds, the analysts suggest, about the oil price effects of the slowing of the US economy, OPEC production cuts, and the result of the US elections.
The US Energy Information Administration suggests OPEC production cuts will cause continuing decline in US inventories through the rest of the year, although the full 1.2mmbbl per day cut will probably not be reached. If demand growth continues at the EIA’s projected rate, inventories will nevertheless drop more rapidly than seasonal patterns usually dictate.
OPEC met last week to discuss whether further production cuts would be necessary.
On the supply side, UBS reports Kuwait expects to add another 200,000bpd by 2009, and Russian crude production is up 2.3% year-on-year. However, the Russian numbers are a disappointment, with analysts having forecast a 3.0% production increase. Chinese oil imports fell in October by 4%, but this still puts them up 14.1% for the year to October.
One of the most fundamental policy shifts (outside the Iraq war) expected as a result of a Democrat majority in Congress is the rolling back of billions of dollars of tax breaks and financial incentives provided to the US oil industry despite record profits. This will have an impact on the share prices of US oil companies, albeit offset against any further increase in oil prices.