A scan of news from a variety of media sources over recent days provides interesting food for thought.
First, the International Energy Authority (IEA) came out with a statement that they were surprised because “all of a sudden the market (for oil) looks tighter than we thought”.
This is based on their conclusions that oil demand growth for 2012 actually came in almost 15% ahead of their forecast at 975,000 barrels a day.
The IEA also raised its 2013 forecasts by 7% thereby projecting increased daily consumption of 930,000 barrels in the current year. There are several thoughts that spring to mind here.
The first is that a 15% miss in IEA estimates is a pretty big miss. This reminds me of the philosophy espoused by my late mentor Matt Simmons that analysing oil and gas data over a short period is dangerous because of the inaccuracy of the data.
Where data is valuable is that over a longer period it provides support and guidance with respect to important market trends.
Clearly these numbers show a higher than expected demand for oil which should not be a surprise because history tells us that despite recessions, wars, natural disasters and financial crises, over the last 30 years global oil demand growth has averaged more than 1.3%.
What is interesting is that the IEA is forecasting that 2013 growth in absolute terms will be materially lower than in 2012.
This seems illogical given the consensus that 2013 will be stronger in terms of GDP growth in the developed economies, particularly the US.
Moreover, early signs are that the euro zone is sorting itself out and should not suffer the sporadic debt induced traumas of 2012, and that the Chinese economy is still growing strongly.
Consequently should we not be expecting a larger increase in daily oil demand?
Whilst on the subject of the Chinese economy it is worth considering the hand wringing that makes headlines in the financial press every time Chinese growth numbers are published.
This week we read that China’s economy “slid to its slowest growth since 1979” expanding its GDP by just 7.8%.
I would have thought that we should be celebrating China’s ability to grow at such a rapid pace in a year when imports from China into the developed economies fell dramatically as a consequence of our economic woes.
Moreover, if my somewhat dodgy maths is correct, if the Chinese economy has grown by at least 8% a year since 1999, then the size of that economy must by now be almost 300% of its size in 1999, and therefore a 7.8% GDP increase may well be a record in absolute terms.
Final thoughts on the news relates to the supply side of the oil and gas equation.
The terrible events in Algeria and the tension in Iraq as the power struggle over oil in the Kurdistan region plays out (with 48 people reported as killed in the conflict) have shocked the world.
Dial in reports of the near demise of Chavez in Venezuela and we have significant potential for material supply disruption from three countries that are major oil and gas suppliers. On the other hand, hats off to the United States for the pace and extent to which they have embraced the gift of shale oil and gas.
This week the IEA reported that not only will the United States become self sufficient (in terms of its energy needs) in the near term, but it is forecast to become the world largest gas producer by 2015 and the largest oil producer by 2017.
The underlying assumption is that recent production growth is sustainable. The IEA acknowledges that there are question marks over reservoir performance and geology that may slow the pace of growth, so the jury is still out on whether this will actually come to pass.
Taken in the round, it is hard to escape the conclusion that as far as oil and gas is concerned, there are fewer uncertainties over the growth in demand than there are over the surety of supply, and therefore we should not be surprised to see an upwards bias in commodity prices going forward.
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