Sunday, June 08, 2008

Global energy and oil supply and demand

I am going to see if I can track global energy and oil supply and demand a little more closely since the proponents of speculation in oil and commodities  seem quite intent on misrepresenting the reality of global supply and demand for oil and other energy commodities. I have been closely tracking the weekly report on domestic U.S. petroleum supply and demand, but now I want to see if I can help to shed some true light on what is going on at the global level. Sure, demand is growing in China and India, but the question is what the rate of growth is, what the global rate of demand growth is, and whether the price "growth" is or is not in sync with supply and demand. I'll focus initially strictly on petroleum, since that is the #1 concern right now.

The main source for global energy data seems to be the International Energy Agency (IEA). They have a monthly Oil Market Report.  Their most current data is only available on a subscription basis, but they do make at least some of the data available with a two-week time delay on their free OMR Public Access site.

There is a lot of data on the site, but not necessarily organized in a form that can be easily massaged to get all of the answers that one might seek. I poked around a little, but I could not immediately see any data that suggests that there has been any sharp rise in demand or sharp decline in supply over the past year to justify the very sharp rise in prices that we have seen if "the law of supply and demand" were the primary driver of the market.

The latest publically available IEA Oil Market Report, dated May 13, 2008, informs us about global demand and supply:

Global oil product demand has been lowered for both 2007 and 2008, to 85.8 mb/d and 86.8 mb/d respectively. Slower economic growth, high prices and 2006 baseline adjustments suggest that OECD oil demand will contract for the third successive year in 2008. Non-OECD demand growth in 2008, led by China and the Middle East, remains strong at 3.7% or 1.4 mb/d, leaving growth for the world as a whole at 1.2% (+1.0 mb/d).

April global oil supply fell by 400 kb/d month-on-month to 86.8 mb/d, pulled lower by North Sea outages, lower FSU output and weaker OPEC supplies. Although 1Q08 non-OPEC supply (ex-Angola and Ecuador) was unchanged from a year ago, OPEC supply stood 1.7 mb/d higher. Non-OPEC output growth in 2008 is now seen averaging 680 kb/d, compared with 550 kb/d in 2007.

Note that the report tells us that "OECD oil demand will contract for the third successive year in 2008." Sure, China and India are growing, but much of the rest of the developed world is seeing less demand. OECD stands for Organisation for Economic Co-operation and Development and consists of 30 member countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece,  Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg,  Mexico, the Netherlands, New Zealand,  Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, and the United States. China and India are not members.

Oddly, the report does not discuss demand and supply in the same terms so that they can be directly compared.

But at least the report gives us the "true" numbers for China and India ("Non-OECD demand), telling us that "Non-OECD demand growth in 2008, led by China and the Middle East, remains strong at 3.7%." That is not precisely China and India alone, but does include them.

The important piece of data is that slowing demand in the rest of the world results in a total demand "growth for the world as a whole at 1.2%." Somehow, that number falls very far short of all of the hype about growing demand that the speculators are pumping out.

There is in fact reason for underlying petroleum prices to rise, since supply is in fact growing at a slower rate than demand, although the report does not put the data indirectly comparable form, especially when pieces of the data are sometimes total, sometimes OPEC-only, sometimes OECD-only, etc. What a pain. Eventually I will sort through this and figure out what the comparable numbers are. But just because the underlying cost may be rising does not justify the pricing offered by speculators.

The report does tell us that the April global oil supply was 86.8 mb/d (million barrels per day) and that the global oil demand for 2007 was 85.8 mb/d and is projected to be 86.8 mb/d for 2008.

As I said, so far I have not seen any numbers that would justify the very sharp run-up in the price of crude oil over the past year. If somebody does know how to numerically justify the discrepency based primarily on supply and demand, they need to "show your math."

-- Jack Krupansky

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