Saudis not cutting back

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Can you blame them? Isis is on their heels, and with world fuel consumption showing no signs of letting up, why would they want to risk losing their position as top dog on the world oil scene? As this chart shows, the current situation is a simple case of Supply and Demand 101. A picture is worth a thousand words. However, here are some keep points according to this incredible/interactive article:

  • Global oil inventory builds in the second quarter of 2015 averaged 2.9 million b/d, compared with 1.9 million b/d in the first quarter.
  • The pace of inventory builds is expected to slow in the second half of 2015, to roughly 1.8 million b/d.
  • In 2016, inventory builds are forecast to slow to an average of 1.1 million b/d.
  • EIA estimates that global consumption of petroleum and other liquids grew by 1.2 million b/d in 2014, averaging 92.4 million b/d for the year
  • EIA expects global consumption of petroleum and other liquids to grow by 1.2 million b/d in 2015 and by 1.3 million b/d in 2016.
  • Growth in global consumption for 2016 was revised downward by almost 0.2 million b/d, compared with last month’s forecast, as China and other Asian economies continue to show signs of weakness.
  • World real gross domestic product (GDP) weighted for oil consumption increased by 2.8% in 2014, and is projected to grow by 2.3% in 2015 and by 2.9% in 2016
  • World real gross domestic product (GDP) weighted for oil consumption increased by 2.8% in 2014, and is projected to grow by 2.3% in 2015 and by 2.9% in 2016.
  • Despite signs of slowing economic growth, China continues to be a driver of non-OECD oil consumption growth.
  • China’s growth in oil consumption is expected to average slightly less than 0.3 million b/d in 2015 and 2016, below the 0.4 million b/d growth in 2014.

Other key points in the article include the probability that the world will reach it’s highest level of liquid fuel consumption since 2010, by next year. Outside of OPEC, other countries will see a rise in producing, accept for the US which will see a decline in 2016 causing the overall market to be flat. OPEC will also be relatively flat in 2016. But, Iran and Iraq will grow while others shrink.

The article also goes on to point out that inventories continue to rise and that this is having a major impact on oil prices.

Bottom line is, we should continue to see downward pressure on crude prices and that it will really start to show up at the pump in greater fashion. The long-term prognosis is bleak with no real relief in sight. The downside to this is increased instability on the world scene, including possible social upheavals and economic impacts in areas already affected in the form of lower national income. Any perceived disorder may have short term effects as did car derailments in the US. These are not hopeful, but unpredictable parts of the world we live in.

Bottom line: the Saudis have no real incentive to cut back. It’s not to say that some other event or influence may have an impact. But, as it looks now, the race is on and the consumer is the winner.

Stay tuned.

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About Scott

Live next to Chevron refinery. Lots of petroleum consultants in the area. I am interested in learning more about the industry. Also, interested in finance, business, and investing in world markets.
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