Daily Energy Report

Global oil demand, IEA oil market report, EU fuel imports from India, the US SPR, Russian gas supplies to Europe, US refinery utilization, Lebanon-Iraq oil deal, and more

CHART OF THE DAY: Global Oil Demand  

Summary:

Figure (1) above shows global oil demand over the past three years with estimates for 2023 from the International Energy Agency (IEA). It reveals a recovery from the COVID lockdowns in both OECD and non-OCED countries, with growth in 2023 driven by the reopening of China.

EOA’s Main Takeaway:

Our objective in posting this chart is not to show the IEA’s forecasts, which were released earlier today, but to emphasize a point that is often forgotten: while the impact of renewable energy on oil demand is extremely limited, most of the impact of electric vehicles on oil demand is in the OECD countries.  The heavy penetration of electric vehicles, fueled by government subsidies, could lead to peak oil demand in some advanced economies as populations peak or decline.  That is not the case in emerging and developing countries, not even China. 

It is about “replacement” versus “growth”.  For instance, in advanced economies with declining populations, the adoption of electric vehicles comes as a replacement of ICE vehicles, therefore, EVs lead to a decline in oil demand.  While in emerging and developing economies, a large growth in car sales means that EV adoption is part of the growth, and demand for oil will continue to increase.  It is expected that the growth of oil demand in emerging and developing countries will outweigh any decrease in oil demand in advanced economies. Hence, there is no peak oil demand anytime soon. Based on our own 2050 Long-Term Outlook, global oil demand will continue to grow, but at a lower rate.

STORY OF THE DAY

IEA: World oil demand forecast to rise by 2.2 mb/d YoY, 200 kb/d above last month’s estimate

Summary:

In its monthly Oil Market Report today, the International Energy Agency (IEA) raised its forecast for world oil demand by 200,000 b/d above last month’s estimate. The IEA now estimates demand to increase by 2.2 mb/d YoY in 2022 to an average 102 mb/d amid China’s demand recovery which it said, “continues to surpass expectations,” reaching an all-time record in March at 16 mb/d.

Figure (2)

Source: IEA, Oil Market Report, May 16, 2023

With respect to oil outages in northern Iraq, Nigeria, and Brazil, the IEA said these were “partly offset by increases elsewhere, with global oil supply down by 230,000 b/d to 101.1 mb/d in April.”  The ongoing halt in crude oil exports from northern Iraq via the Turkish port of Ceyhan has left many in the oil market on edge since a dispute between Turkey and Iraq has taken around 450,000 b/d of barrels off the market, and which are mainly comprised of the Kurdish medium sour grade known as KBT.

The IEA estimated that from April through December, OPEC+ oil supply is expected to drop by 850,000 b/d, while non-OPEC+ supply edges up by 710,000 b/d. Overall, global oil supply in 2023 increases by 1.2 mb/d, led by the US and Brazil, the IEA said in its report.

Figure (3)

Source: IEA, Oil Market Report, May 16, 2023  

Regarding Russia’s crude and oil product exports, the IEA said they increased in April to “a post-invasion high” standing at 8.3 mb/d. Shipments of crude oil specifically rose by 250,000 b/d. Russia’s oil revenues, meanwhile, increased by $1.7 billion to $15 billion, the IEA said, due to “higher crude oil exports and a narrower Urals discount.”

EOA’s Main Takeaway:

Our own estimate for the growth of demand remains lower than that of the IEA.  The IEA’s estimates are now close to those of OPEC.  We are wary of any changes in forecasts before the OPEC meeting scheduled for June 4. In addition, we believe we need more time to figure out data on China’s oil imports, specifically regarding what is being stored and what is being consumed.

NEWS OF THE DAY

1-      FINANCIAL TIMES: EU urged to crack down on imports of Indian fuels made with Russian oil

Summary:

In an interview with the Financial Times, EU foreign policy chief Josep Borrell said that the bloc must take measures against EU fuel imports from India which are refined using Russian crude oil, saying this is a “circumvention of sanctions.”

"That India buys Russian oil, it's normal... But if they use that in order to be a center where Russian oil is being refined and by-products are being sold to us...  we have to act," Borrell was quoted as saying.

EOA’s Main Takeaway:

Under current sanctions, India is not violating any rules and several EU members are importing Russian petroleum products from third countries that are re-exporting them, or from refiners that are using Russian crude oil. 

The Indian government and its oil ministry rejected the European accusation earlier this month, emphasizing India’s sovereignty.  The increased sense of nationalism in recent years means that India will continue to ignore European complaints.  Our view is that virtue signaling by some European officials will continue to backfire, and we expect to see a lot of pushback at the COP28 in Dubai later this year. European officials will be pressured to embrace more pragmatic policies.

2-      DOE: US Department of Energy Announces Purchases for the Strategic Petroleum Reserve

Summary:

The US Department of Energy (DOE) announced yesterday that it will purchase up to 3 million barrels of oil for the Strategic Petroleum Reserve (SPR), issuing a solicitation of sour crude oil to the Big Hill SPR site. 

EOA’s Main Takeaway:

We believe it when we see it!  We would like to emphasize that the cost of oil delivered to the SPR site is way higher than the oil price in the market.

3-      REUTERS: Kazakhstan, Russia map out gas pipeline to China

Summary:

Kazakhstan’s energy minister Almasadam Satkaliyev said today that talks are underway with Moscow to construct a gas pipeline from Russia through the northern territories of Kazakhstan to China. However, he did not provide further details.

Such a project would help sanctioned Russia increase energy sales in Asia, and allow Kazakhstan to secure supplies for its central, northern, and eastern regions, Reuters said.

Russia has previously discussed with China the idea of building a second pipeline between the two countries, the Power of Siberia 2, with an annual capacity of 50 billion cubic meters. But according to Reuters, talks on this second pipeline haven’t been solid so far.

EOA’s Main Takeaway: