National Petroleum News (NPN) has been the independent voice of the petroleum industry since 1909 as the opposition to Rockefeller’s Standard Oil. So, motor fuels marketing and retail is not just a sideline for us, it’s our core competency.
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MARKETING & SUPPLY and that’s what we saw in December prices rose on the mar- ket and one of the drivers was apparently the news of improving economic outputs.” As the EIA notes in a country-specific analysis, China is the second largest oil consumer behind the United States. China shifted from being a net oil exporter to a net oil importer in 2006 and the country is also now a net importer of diesel. China’s oil consumption growth accounted for about a third of the world’s oil consumption growth (but not actual consumption) in 2009. Although the recession generally stunted oil demand internationally, China was less impacted than the United States and its demand is already ramping up. As with the United States, oil consumption is overwhelmingly linked to transportation fuels. Platts, a leading global provider of energy and metals infor- mation, recently released an analysis of Chinese oil demand for 2010 that found an increase of 11.43 percent to an average 8.71 million b/d. The oil and gas consulting firm FACTS Global Energy similarly expects China’s oil demand to increase to an average 9.5 million b/d in 2011.By comparison, the United States currently consumes about 19 million b/d. In a Feb. 1, 2011, interview in China Daily, Zhang Fuqin, deputy chief engineer with China Petroleum Planning and Engineering Institute, expects China’s demand for oil prod- ucts to grow at average annual rate of 4 percent to 5 percent in the 2010-15 period based on an annual GDP growth rate of 7.5 percent. As the standard of living increases in these developing nations so does the ownership of automobiles and the con- sumption of gasoline as well as the commerce related con- sumption of diesel fuel. Correlating with oil consumption, China has become the leader in new-car purchases and Chinese officials expect there to be 75 million cars on the road in 2011 and perhaps 200 million cars by 2020. This compares to approximately 250 million cars in the United States, some of which represent multiple cars owned by a single driver. Chinese economic policy has vacillated between encouraging and discouraging automobile owner- ship, particularly as current congestion has reached alarm- ing proportions. Obviously, this growth will strain produc- tion capacity. From a near-term oil supply standpoint, EIA expects non-OPEC crude oil and liquid fuels production to rise by 160,000 b/d in 2011 and a further 20,000 b/d in 2012. EIA expects that OPEC members’ crude oil production will con- tinue to increases by 0.5 and 1.1 million b/d in 2011 and 2012, respectively. In general, most estimates see production keeping up with demand for at least some period of time. Where longer-horizon supply is concerned, the issue of “peak oil,” or at least some variation on the concept relative to the belief that production capacity (and new reserves) will 16 JANUARY/FEBRUARY 2011 continually decline as demand continually increases, also comes in the play. The timeline for this tipping point varies greatly between a mere handful of years and many decades depending on a range of credible sources. Where reserves are concerned, BP statistical data notes a general increase in reserves between 2008 and 2009 of about 700 million barrels n Brazil, Denmark, Saudi Arabia, Egypt and Indonesia to a total of 1.33 trillion barrels. Counteracting that is the time required to exploit the new reserves relative to the drop-off in production capacity among a number of mature fields such as those in the North Sea and Mexico.As noted, no specific timeline is accepted as fact at this point, but where the futures markets are con- cerned a tipping point somewhere between 2014 and 2020 seems to be popular. SOME TRADITIONAL VOLATILITY DRIVERS As noted previously, the price of crude is the fundamental driver behind current oil and gas prices.However, more tra- ditional regional, national and international motivators rel- ative to regional supply, demand and inventories in both crude and refined products can still play a notable, but more short-term, role in prices. A few recent examples stand out. “The strikes in France in October triggered gasoline prices to move sharply higher in the New York Harbor mar- ket,” said Brian Milne refined fuels editor for Telvent DTN, a leading business information services company that is focused on the agricultural, energy, public safety, aviation, turf, recreation, construction, transportation and environ- mental business sectors. “That was part of the reason help- ing the fourth-quarter (2010) rally. That was a month-long strike and we saw gasoline supply drawn down to a 13 month low and it does show you how quickly you can see supply drawn down if something happens.” Refinery utilization has dropped significantly in the United States since the recession and along with it refiner profits and this has led to over capacity and the closing of some refineries. This is seen as being acceptable in the long run as US demand is expected to continue to be relatively stunted even after the economy improves due to more stringent CAFE automobile mileage standards and the anticipation of at least some continuation of alternative fuel initiatives. This, for the most part, simply represents the continua- tion of rationalizing supply and demand in the U.S. refining sector that got underway with a major push in the 1980s after the oil industry was deregulated.At that time, there was a veritable bloodbath roughly half of the U.S. refineries were closed—typically the older and less efficient facilities. The capacity was replaced, and then some, by ramping produc- tion capacity at the remaining refineries. NPN Magazine www.npnweb.com