MARKET IMPLICATIONS
Solar shift:
With more than a million US houses set to have solar panels by the end of next month, grid managers serving the eastern US plan to cut the amount of electricity they buy from conventional plants by about 1,400 megawatts, starting in 2019, according to industry consultant ICF International Inc. That’s enough juice to power about 780,000 households. The result could be as much as $2 billion in lost revenue for generators that are already reeling from lower demand, tight environmental regulation, and depressed prices.
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Peak Oil Review – 21 March 2016
By Tom Whipple
Quote of the Week
“It could be a lot of years before you see any meaningful rebound in the dividend [of oil companies]. It’s tough to have a really conservative, stable investment in a business that can’t control the price of its own product.”
Josh Peters, Editor,
Morningstar Inc.’s DividendInvestor Newsletter
Contents
1. Oil and the Global Economy
2. The Middle East & North Africa
3. China
4. Russia/Ukraine
5. The Briefs
1. Oil and the Global Economy
The price rally that has been on-going since mid-February continued last week with US futures closing Friday at $39.44 a barrel, up 2.4 percent for the week, and London futures closing at $41.20 up 2 percent. Last week the move came from a combination of what one analyst termed a “brilliant communications strategy” and other developments that normally lead to higher prices. The “brilliant communications strategy,” of course, is the meeting in April during which those countries that either cannot or do not want to increase oil production are supposed to agree not to increase their production. During the week, Moscow even hinted that Iran might join the group after it increases its oil output to 4 million b/d, a goal that might take many months or even years to reach. The producers now are scheduled to meet on 17 April in Qatar; the meeting is being heralded as the first agreement to limit global oil production in 15 years even though it is unlikely to have any real impact on oil production.
There was, however, some news last week of the kind that moves oil prices. The US Federal Reserve announced that its plan to increase US interest rates is likely to be more limited than previously announced. This news pushed down the dollar and moved oil prices higher. US crude stocks grew by only 1.3 million barrels the week before last which was the smallest gain in the last five weeks. The markets ignored the storms in the Gulf of Mexico that week which restricted imports. Traders continue to watch the US rig count, which last week fell to an all-time low of 476, down from 1,069 a year ago and 4,530 back in 1981. Rigs drilling for oil last week increased by one rig which is meaningless, but brought hopes of higher prices to the markets. Although oil production in the US continues to slip, the resilience of the industry has been remarkable considering the low prices and the number of rigs continuing to drill for oil.
The mystery of 800,000 b/d of missing oil has some analysts wondering if the IEA’s story of a 1-2 million b/d surplus in world oil production has been overblown. They are saying that supply and demand could be much closer to being in balance than most believe. It seems that last year 800,000 b/d of what was thought to be surplus oil production did not end up in OECD storage tanks when the year was over. There are several possible reasons for this. Oil could be going to storage in tanks outside of the OECD inventory count; oil production was lower than estimated, or oil consumption was actually higher. If the 800,000 b/d never existed and were only the result of bad accounting and misestimates, then we should be much closer to a global rebalance and price rebound than currently forecast.Bad news for the oil industry, such as bankruptcies, restrictions on financing, or large cutbacks in capital spending, continues to be announced daily. At some point in the coming years, there clearly will be some major drops in production unless capital spending and drilling for new oil increases rapidly, depletion will take its toll.
Natural gas prices which have been below $2 per million BTUs since mid-February and at one point were trading around $1.65, rebounded to close at $1.90 last week. These prices, of course, still are well below the actual costs of production, which is why we are starting to see a reduction in the-drilling-for-gas rig count and gas production.
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