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01 May 2016

Press review 01-05-2016 - Not so hard to understand

Brent rallied significantly this week again, at some point trading over 48 $/b, amid renewed volatility. These are the highest prices since early November. The energy intelligentsia seems at a loss to explain this four week long rally and the petroleum related news suddenly became scarce. It will be at least four months before the first public data on petroleum extraction is published; only then can it be fully understood what is behind these price movements.

A regular reader of this review has probably noticed a certain animosity towards the mainstream press. By and large journalist seem unable, or unwilling, to report the relevance of the energy transition the world is going through. As always, there are exceptions. Daniel J. Graeber writes for the UPI and his articles figure frequently in this review. Starting with a report issued by Wood Mackenzie, Daniel J. Greaber just wrote an article proposing a peak in world petroleum extraction. Never using obvious terms, the picture laid down in this article is fairly clear nevertheless.

25 April 2016

Press review 24-04-2016 - Where the press get it wrong

The Doha meeting last weekend was a major failure, with what appeared to be an easy agreement torpedoed by Saudi Arabia. From then on the media went on a frenzy, announcing the imminent collapse of market benchmarks. The Brent index went in the opposite way, and by Tuesday was trading at 46 $/b. The European benchmark h,as now erased the huge losses of early December, when it lost almost 20% of its value in a week on the face of all those well paid pundits out there. But what the media is reluctant in reporting is the formation of a backwardation structure in the futures market - at odds with the calls of price collapses.

Another point the media is not really getting right is the so called "sluggish demand" meme thrown around as the root of the present under-priced petroleum market. The data show otherwise - particularly in China. From the news bits bellow and other assorted data points, I now estimate petroleum consumption to have already surpassed 10.5 Mb/d in China. This means it could very well hit 11 Mb/d still this year.

None of this means a price recovery is around the corner, there are still at least the above ground stocks to go through. This supply destruction cycle still has some bad news in store. However, some fundamental changes are about.

16 April 2016

Press review 16-04-2016 - White Petroleum

This was another sluggish week, with the press trying to create news where there is none. The Brent index rallied significantly Monday and Tuesday, loosing much of that ground in the remainder of the week. Still, it posted yet again the highest weekly close of 2016. The press is building huge expectations around the meeting taking place in Doha, where some of the largest petroleum exporting countries in the world are supposed to declare a "freeze" to their output. It is known beforehand that the few countries with real prospects to hike extraction will not be abridged. But the press loves the symbolism of it, that is how they make headlines.

There were also the usual news of bankruptcies among the American petroleum industry, but by and large money keeps flowing from the finance industry to bridge the gap between price and costs.

These past few days the press has also been busy producing free advertisements for the luxury electric car maker Tesla, that is now trying to reach the higher middle class in rich countries. The company is committing to increase its production ten fold to meet the hype created around its products. There might be a problem though, this promised production hike means Tesla will be soon consuming all the Lithium extracted in the world.

Can Tesla make the world flat?

09 April 2016

Press review 09-04-2016 - Of markets and robots

Brent continued moving sideways this week but still with moments of high volatility. Nevertheless, the benchmark closed Friday at the highest level in 2016, even if marginally. The press lingers to the slightest bit of information to explain intra-day movements, invariably making little sense. The petroleum market remains mostly dead, with a flat futures curve and no real news to report.

This market reflects the enduring of world extraction around 80 Mb/d, that remains apparently unresponsive to price movements. In fact, the extraction decline many expected (me included) in the US has not materialised. And regarding recent news, it might never fully materialise. Even with a bankruptcy wave well under way, the US petroleum industry continues extracting as much as it can, with the support of both the finance industry and the judicial system. For the US it seems price no longer matters, and traditional petroleum exporting countries are being effectively pushed out of the market.

02 April 2016

Press review 02-04-2016 - Markets in torpor

The "Friday afternoon smack-down" is a common feature to various commodities markets, sudden and deep drops in price during low volume hours that are not justifiable by any changes in fundamentals or unexpected news. It is a rare event with petroleum, but it happened this week, with the Brent index falling about 2 $/b throughout Friday. This kind of event points to a "dead" market, with prices moving sideways for weeks and relatively low volumes. Everyone seems to be keeping something on the side, waiting for the market to wake up.

This torpor was visible in the lack of relevant news throughout the week, the quietest in a very long time. The mainstream media continues running regular pieces on the bust of the "shale industry" in the US, without adding much to a worn story that endures without a proper epilogue. Little attention is given by the press to what these imply outside the US, which long term is far more relevant for our energy predicament. A number countries linger in this market, and even if they survive this period, their petroleum exporting capacity will be impacted for years to come.

26 March 2016

Press review 26-03-2016 - It looks like it, it smells like it, but dare not to say it

Some might have taken the acknowledgement of war by François Holland after the attacks on Paris last November as a coup of drama by an unpopular President. Unfortunately, such is not the case, and it is not just France that is at war, the whole European Union is. Destroying the Union is effectively one of Daesh's goals, the motive behind its multiple attacks last Tuesday in Brussels. It is therefore capital to understand the rise of the Front National in France, the UKIP in Britain, the Alternatif fur Deutschland in Germany or the Golden Dawn in Greece as fulfilments of this goal. As Catholics mourn and celebrate the death and resurrection of Jesus Christ, it is perhaps time to remember the philosophical foundations laid 2&nbsp000 years ago that still support much of the European identity today. Bending to hate and fear is simply loosing this war.

"Oil peaked in 2015" is becoming a recurrent claim. This time however, it was not issued by Ron Patterson or Euan Mearns, it is claimed by a major mainstream media outlet. Making reference to a report issued by Rystad Energy, Bloomberg lays down a clear picture: world petroleum extraction is to diminish slightly this year, decline over 1 Mb/d in 2017 and 2018 and this trend should accelerate afterwards. They just do not dare to say it, but it is all out there in the open for every one to see.

Is this it? I usually prefer a word of caution, considering the geo-political hurdles hanging on major petroleum exporting regions such as Lybia, Iraq and Iran. Peak Oil is a secular event, not exactly fitting the frenetic rhythm of the always on-line modern way of life. But after more than a decade studying this subject, this is indeed the first time I feel this civilisation changing moment could actually be behind us.

19 March 2016

Press review 19-03-2016 - The next phase of the cycle

The Brent index continued its rally this week, albeit in slightly less volatile sessions. The past four weeks the price of petroleum crept up 30%, a movement unimaginable just a decade ago. The futures curve remains in contango, but it is visibly flattening in the short term.

The petroleum market endures the supply destruction phase. The focus remains naturally on producing countries and companies and their financial owes. However, as Economics text books teach, the kind of dramatic market movements lived the past 18 months tend to spur reactions from the demand side. Petroleum consumption is steadily swelling, particularly in Asia. The stage is being set for the next phase in the market cycle.