International Energy Agency revises oil demand upwards
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Midland Reporter-Telegram
02/25/2007
International Energy Agency's monthly report for January revised this year's oil demand forecasts.
The upward revision comes on expected increased demand in China and the Caspian regions. With the revision, the IEA anticipates the 2007 world demand to increase by 1.8 percent.
On the supply side, the report indicates that OPEC (minus Angola) produced less in January from one month earlier. However, these production cuts were offset by higher output from the former Soviet Union. In fact, the world oil supply has increased by 175,000 barrels per day in January to a new total of 85.5 million barrels per day. Lastly, because of the new shift of Angolan production into OPEC's numbers, there was large downward revision to non-OPEC production for 2007.
Primarily on the upward revision to demand forecasts we view the latest report as modestly supportive for oil prices. The downward revision to '07 non-OPEC supply is also supportive. Though OPEC continues to make strides in cutting production, the main challenge ahead for the producer group is how to quickly integrate Angola which will be brought into OPEC's quota system in the second quarter of this year.
Natural gas...
The National Oceanic and Atmospheric Administration released its new long-range weather forecasts this week. Looking beyond the shoulder months of March through May and focusing on the summer, we view the forecast for June, July, and August as generally supportive to Natural gas prices.
The summer temperatures on both coasts look like they will be above average while the Midwest may exhibit a more typical seasonal pattern. With the increased use of natural gas in the Power sector, this forecast suggests a slower accumulation season.
Also, a recent Cambridge Energy Research report suggests that because of rising rig rates which increased 30 percent each year between 2003 and 2005 and a lack of qualified labor, natural gas prices will be supported. Last year the U.S. saw a record number of wells drilled, but production remained flat. One of the problems for the market in coming years is that as Liquefied Natural Gas projects come online, there may be a shortage of trained engineers to run cooling plants that turn the gas into liquid. This offers little price support to an already tight market.
Quick news....
- In Beijing, reports suggest the six-party talks on North Korea's nuclear program have resulted in a tentative deal. In return for $400 million in fuel oil and economic and humanitarian aid, North Korea will apparently disable its nuclear facilities and allow IAEA inspectors into the nation. We anticipate that one of the main aids to the nation will come in improving the power grid. The nation's power plants are roughly 50 years out of date. The larger issue at stake is that if North Korea denuclearizes, one of Iran's biggest supports may be cut off from Tehran. North Korea is suspected of arming Iran with a great deal of technological know-how for developing its nuclear program.
- In its monthly Oil Market Report released last week, the International Energy Aagency said that if Western governments do not design policies to conserve oil, consumption will continue to increase and "in just three years the rate of oil demand growth will once more outstrip the growth of new oil supplies." They concluded that if oil consumption is not curbed, "the slim respite from tight spare capacity may prove very brief." The result of a market with tight spare capacity is increased volatility, and an inability to avoid price spikes.
- A Russian official from the Industry and Energy Ministry says the nation plans to meet 20 percent of European, 5 percent of Asian, and 1 percent of American supplies by 2015. The official said Russia plans to add enough pipelines to ensure 25 percent reserve capacity. They've proposed numerous pipeline projects that bypass Belarus and Ukraine.
- China's reliance on imports grew last year as their economy expanded its fastest pace in 11 years during 2006. Demand for oil was up 9.3 percent as the economy grew 10.7 percent. Chinese demand for oil in 2007 is forecast at 7.56 million barrels per day.
- BioEnergy Solutions and Pacific Gas & Electric have signed a 10-year agreement for BioEnergy to supply upwards of 3.0 bcf/year of natural gas to the utility company. The methane gas will be produced from cow manure, and could generate electricity for upwards of 50,000 homes.
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Portions of this article were produced on February 13th, 14th, 15th & 16th 2007 by Bill O'Grady, Assistant Director of Market Analysis, A.G. Edwards. Its publication is a collaborative effort and the information is obtained from sources considered reliable, however accuracy is not guaranteed by A.G. Edwards. Past performance cannot guarantee future results. A.G. Edwards& Sons, Inc., Member SIPC.
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