Energy Outlook Q4 2013

Boring Oil Markets – Yippee!


  • December-01-2013
Boring Oil Markets – Yippee!

The oil markets are certainly facing their fair share of headwinds – is it ever thus you may say!

But what appears to be dramatically different on this occasion is that Brent crude remains boringly stuck in an uninterested slumber of $110 a barrel regardless of feast or famine wailing on all sides. But plain vanilla consistency is certainly useful, for producers and consumers love nothing more than the stability of predictability, especially Iraq as it maintains a bold determined march towards the target of 10 million barrels a day with a new refreshing flexibility to adjust and adapts to ensure a win-win framework for all stakeholders.
But it could be a few rather dull developments that may shake up this nice cruising $110 altitude – one forcing a breakout to the upside and the other could propel a crash through the floor. The upside is a double edged sword: Gulf States aren’t just among the world’s largest energy exporters, they are also quietly emerging as major energy consumers in their own right, eating into their countries’ oil export capacities with Saudi Arabia already consuming about one quarter of its production. OPEC’s domestic oil consumption has increased seven-fold in 40 years, to 8.5 million barrels per day (bpd). They consume almost as much oil as China, and this constitutes one fourth of their production. Such rapid growth in consumption – 5.1% annually, faster than their income growth of 3.1% – will challenge OPEC’s ability to increase their oil exports, which are relied upon in long-term world oil projections by the International Energy Agency.
The downside: The counterbalance, markets are increasingly convinced that US monetary policy is reaching a turning point that doesn’t bode well for the Brics emerging markets. Talk by the Federal Reserve about tapering its quantitative easing -printing cash- measures led to an unexpectedly large increase in long-term yields in the US and pushed Asian currencies up close and personal with a 1998 cliff, much of which has not been reversed despite a subsequent decision by the Federal Reserve to maintain the amount of asset purchases and policy actions in other countries.
And we didn’t even mention Coal is back!