Oil price discussion and analysis

ducati916 · 23 January 2019

So if you wanted to work it out as an estimate:

There are currently [approximately] 1 billion cars driving each day worldwide.

So with that information you should be able to roughly estimate [calculate] what % of the oil usage is consumed by passenger cars currently.

Then simply find out an estimate of EVs. Their uptake rate and you will have an estimate on oil usage.

jog on
duc

rederob · 23 January 2019

ducati916 said:
There are currently [approximately] 1 billion cars driving each day worldwide.
So with that information you should be able to roughly estimate [calculate] what % of the oil usage is consumed by passenger cars currently.
Then simply find out an estimate of EVs. Their uptake rate and you will have an estimate on oil usage.

I hope you do other calculations with better data.
Cars do not represent the total consumption of transport fuels. In the USA it's less than 60%, and in other countries with significantly lesser driving miles (kilometres) than the USA, the share could be markedly different.
The ICE vehicle legacy effect means that the small numbers of EVs hitting the roads will need to ramp to well over 10 million per year before impacting the small vehicle sector by one percentage point of the less than 60% contribution of transport use, which accounts for around 65% of total use

ducati916 · 23 January 2019

rederob said:
I hope you do other calculations with better data.
Cars do not represent the total consumption of transport fuels. In the USA it's less than 60%, and in other countries with significantly lesser driving miles (kilometres) than the USA, the share could be markedly different.
The ICE vehicle legacy effect means that the small numbers of EVs hitting the roads will need to ramp to well over 10 million per year before impacting the small vehicle sector by one percentage point of the less than 60% contribution of transport use, which accounts for around 65% of total use

No I didn't do any calculations at all.

I stated if 'you wanted to' and 'roughly estimate'.

jog on
duc

rederob · 23 January 2019

ducati916 said:
No I didn't do any calculations at all.

I stated if 'you wanted to' and 'roughly estimate'.

jog on
duc

I agree.
Your idea can lead to an estimate roughly 100% different to actual.
I will give that a miss.

ducati916 · 23 January 2019

rederob said:
I agree.
Your idea can lead to an estimate roughly 100% different to actual.
I will give that a miss.

Maybe yes, maybe no.

The fact of the matter is however you have no idea how far out or not any calculation might be, simply because I have not completed one.

So your 'estimate' of '100%' is simply nonsense.

jog on
duc

Ann · 23 January 2019

Gotta love this internet, you can find anything in seconds!
I was talking about watching the oil rig count as a possible lead indicator of the oil price and saying I didn't know where the information came from, now I do so I shall share it here and hope someone may find it of value.
Baker Hughes, a GE company (NYSE:BHGE)

Press here for the link

(WhooHoo! Thanks for the magic linking instructions Rob. )

rederob · 23 January 2019

ducati916 said:
Maybe yes, maybe no.

The fact of the matter is however you have no idea how far out or not any calculation might be, simply because I have not completed one.

So your 'estimate' of '100%' is simply nonsense.

jog on
duc

In the USA in 2017 cars accounted for about 40% of total oil usage.
On USA data alone you method cannot be better than 60% accurate.
I don't know the global use of oil for cars, but statistically the USA is significantly higher given it's transport sector consumes over 70% compared to a global average of maybe 65% (given the data is a few years old).
It is not outside the bounds of probability that global data might show that nearer 50% of oil is consumed by cars.
So if cars accounted for 50%, then 100% of that needs to be added to get the global total for transport use.

Ann · 2 February 2019

Cars use petrol and planes use a special kerosene mix which are both made from light sweet oil which have high inventories in the States at the moment apparently. Ships and trucks need diesel fuel which comes from the heavier oil. That is oil from the Gulf states and Venezuela. This is in shorter supply at the moment.
So does that mean cars and planes will pay less at the pump and trucks and ships needing diesel will be paying more? What then does all that mean for the POO? Maybe Brent will split from the trail of WTIC and do its own thing? I should have a look at a chart for Brent.

America Is Producing the Wrong Kind of Oil

The shale boom has created a world awash with crude, putting a lid on prices and markedly reducing U.S. dependence on imported energy. But there’s a growing problem: America is producing the wrong kind of oil.

Texas and other shale-rich states are spewing a gusher of high-quality crude -- light-sweet in the industry parlance -- feeding a growing glut that’s bending the global oil industry out of shape.

Refiners who invested billions to turn a profit from processing cheap low-quality crude are paying unheard of premiums to find the heavy-sour grades they need. The mismatch is better news for OPEC producers like Iraq and Saudi Arabia, who don’t produce much light-sweet, but pump plenty of the dirtier stuff........

Smurf1976 · 2 February 2019

Ann said:
Cars use petrol and planes use a special kerosene mix which are both made from light sweet oil which have high inventories in the States at the moment apparently. Ships and trucks need diesel fuel which comes from the heavier oil. That is oil from the Gulf states and Venezuela. This is in shorter supply at the moment.

A point often forgotten is that cars do indeed run on petrol and likewise your computer is running on electricity not coal or uranium.

Refineries do have the ability to do some whiz bang chemistry with all this but there are limits certainly.

One such limit is with the feedstock as you mention.

Another looming one is the demand for ~3 million barrels per day of heavy fuel oil used in shipping which is required to be low sulfur from the beginning of 2020 which isn't far away now. It's certainly possible to remove the sulfur from heavy fuel oil but 3 millions barrels per day is a huge volume, it's ~40% of the entire heavy fuel oil market, and I very much doubt that refineries have desulfurisation capacity just sitting around doing nothing.

If they can't do it then the workaround for ship owners is to switch to diesel. That's easy for the ship but then creates the issue of the significant increase in consumption of diesel and decrease in the consumption of heavy fuel oil so there's another thing to upset the markets.

If it gets cheap enough then the fuel oil will find its way into power stations in places that either have no emissions laws precluding it or which have flue gas scrubbers on the facilities (Japan being basically the only place to do so in a big way in the context of oil-fired power stations - but for them to want it that oil will need to undercut LNG and coal which then shifts the problem to those markets). Beyond that, well yeah it gets interesting with the market impact.

rederob · 2 February 2019

Smurf1976 said:
Another looming one is the demand for ~3 million barrels per day of heavy fuel oil used in shipping which is required to be low sulfur from the beginning of 2020 which isn't far away now. It's certainly possible to remove the sulfur from heavy fuel oil but 3 millions barrels per day is a huge volume, it's ~40% of the entire heavy fuel oil market, and I very much doubt that refineries have desulfurisation capacity just sitting around doing nothing.

This was mandated by the IMO in 2016 so as to give all players time to transition.
The impact will be more expensive fuel oil for ships due to refining costs, plus additional compliance costs to implement new fuel and machinery systems.
I'm not see other displacement effects.

Smurf1976 · 2 February 2019

rederob said:
I'm not see other displacement effects.

That depends on whether or not refineries have invested the $, and it's rather a lot of $, before demand for heavy fuel oil substantially switches to a much lower sulfur requirement due to the rule change.

It's one of those things where we'll only know in hindsight but given the scale it seems at least plausible that there will be issues.

rederob · 3 February 2019

Smurf1976 said:
That depends on whether or not refineries have invested the $, and it's rather a lot of $, before demand for heavy fuel oil substantially switches to a much lower sulfur requirement due to the rule change.
It's one of those things where we'll only know in hindsight but given the scale it seems at least plausible that there will be issues.

I meant earlier that I did not see much potential for the gross volume of marine bunker fuel demand to change, and therefore was of the view that total oil demand would remain largely unchanged . That is, I was not buying into a substitution argument because while the shipping industry would prefer LNG, it would require an infrastructure overhaul for the 70000 strong global fleet, which is a transitional magnitude exponentially greater than introducing low sulfur fuel oil.
My rationale is that whatever refined fuels are available to meet the LSFO requirement will be paid for by the shipping industry because they are simply going to pass the additional costs on their customers. Further, I see the shipping industry outbidding market competitors for whatever product they need, so if there is going to be substitution it is more likely to be in other market segments.
If my rationale is borne out then it may mean that producers of high sulfur oils can no longer find the market they relied upon prior to 2020.
I don't have data on the amount of HFO presently consumed by the shipping industry, but removing it from the market is likely to lead to POO moving a lot higher than average prices to 2020.

rederob · 3 February 2019

Found a useful reference to help on the IMO mandate, writing:

"We expect that this lack of timely investment will cause a need, at least over the short term, for lower sulfur product blending in order to meet the new fuel standards. Thus, we expect the ~4MBD bunker fuel market will see 1.5-2 MBD lower High Sulfur Fuel Oil (HSFO) demand and be replaced with lower sulfur products (Diesel, Marine Gasoil, Straight Run Fuel Oil, and potentially Light Vacuum Gasoil). This required blending could generate YoY diesel demand growth near 1.2-1.5 MBD, as compared to a longer-term average of 300-350 KBD.
In this scenario, the petroleum complex must push HSFO towards a waste product and replace it with higher cost diesel/low sulfur products. In simple terms, until increased significant investments are made, the industry will replace the lowest value refined product with a blended compliant fuel that is among the highest, at approximately $40-50/bbl higher. With limitations to a diesel or middle distillate yield shift, we expect this will act like higher oil demand as refiners increase runs to meet higher value product demand (we estimate 1.0-1.5 MBD increase in runs).
Lastly, this is a large yet limited duration event, in our opinion, as wide product and crude spreads should encourage appropriate capital investment to close the gap over a 3-5 year time horizon."

Seems to confirm a resilient price structure for POO leading into 2020 and until the EV market squashes oil demand.

Ann · 3 February 2019

rederob said:
LNG, it would require an infrastructure overhaul for the 70000 strong global fleet, which is a transitional magnitude exponentially greater than introducing low sulfur fuel oil.

I had no idea ships would consider LNP as a fuel. Are there any LNG fired cargo vessels around now or is it a future thing? Would LNG be lighter to carry, it would certainly be environmentally cleaner if there was a shipping accident or would it?

Ann · 3 February 2019

Oil Rig count down, will that mean a fall in the price, let's see?

Smurf1976 · 3 February 2019

Ann said:
I had no idea ships would consider LNP as a fuel. Are there any LNG fired cargo vessels around now or is it a future thing?

There's one on the Victoria - Tasmania freight run (a conventional freight ship powered by LNG) and LNG powered large catamarans have been built for overseas customers at the Incat shipyard in Hobart.

http://www.mastermariners.org.au/ne...road-launches-new-era-in-bass-strait-shipping

https://www.incat.com.au/world-first-incat-lng-ship/

My point about fuel substitution wasn't really about ships using LNG though, it's more short term and fundamental than that.

*New law limits sulfur in fuel oil used by ships from 2020.

*There seems to be a broad thinking, as per the link quoted by rederob, that in the short term at least refineries probably don't have the capacity to simply strip the sulfur out of heavy fuel oil. It can be done technically but it's very doubtful that $$$ worth of equipment to do so is just sitting there. If that's correct then some heavy fuel oil consumption will in practice need to be replaced with other things eg diesel.

*Which then raises the big question of who will be using the heavy fuel oil? It's still going to be produced and if ships aren't using it then who will?

That last bit is where the potential for disruption to other markets arises. Regardless of who ends up buying it, in practice they're going to burn it as fuel to run furnaces (eg for cement production) or boilers (most obviously power stations) instead of using some other fuel which would usually be coal or gas.

There's a lot of ifs and assumptions in all of this and I'm by no means 100% convinced it will happen but it does seem plausible and I note I'm certainly not the only one thinking this way.

To the extent that it does occur then it's bullish for crude oil, even more bullish for diesel, but bearish for heavy fuel oil and whatever flow on effect that has to other fuels via substitution.

Sdajii · 4 February 2019

Ann said:
Oil Rig count down, will that mean a fall in the price, let's see?

View attachment 91880

Why would less rigs mean a fall in price? Low prices mean less rigs mean higher prices.

I'm still calling $100 oil before the end of July (less than 6 months to go now), and I expect some of the reasons are becoming more obvious.

Ann · 4 February 2019

Sdajii said:
Why would less rigs mean a fall in price? Low prices mean less rigs mean higher prices.

I'm still calling $100 oil before the end of July (less than 6 months to go now), and I expect some of the reasons are becoming more obvious.

What are those reasons Sdajii, let's have them lad? Nothing is becoming obvious to me. China is having a slow down, so less oil consumption, the US has huge inventories of WTIC, there is a stand off in Venezuela but that has not sent the price skyward, ships will move away from heavy crude so the OPEC countries will have less demand for their product. The only thing I can see which will raise the POO is further extremes of cold temperatures in the Northern Hemisphere and oil will be required for heating.

The reason I am watching what will happen with the oil rig count was a chart which showed the price appeared to travel with the oil rig count on this chart. I am yet to be convinced it is a lead indicator but will be interested to watch. I am always on the lookout for lead indicators in any area.

Parse · 4 February 2019

Ann noticed there was a past correlation that when the oil rig count was reported as down then often a drop in the oil price followed. So this is just to see if that case is going to continue.

My problem is that everywhere you look the number of oil rigs is different in the USA. Take a look at this article on oilprice.com True they agree the oil rig count is down but...
"The total number of active oil and gas drilling rigs fell by 14 rigs, according to the report, with the number of active oil rigs falling by 15 to reach 847 and the number of gas rigs increasing by 1 to reach 198."
That's certainly different figures to what Ann has found.

Ann · 4 February 2019

Parse said:
Ann noticed there was a past correlation that when the oil rig count was reported as down then often a drop in the oil price followed. So this is just to see if that case is going to continue.

My problem is that everywhere you look the number of oil rigs is different in the USA. Take a look at this article on oilprice.com True they agree the oil rig count is down but...
"The total number of active oil and gas drilling rigs fell by 14 rigs, according to the report, with the number of active oil rigs falling by 15 to reach 847 and the number of gas rigs increasing by 1 to reach 198."
That's certainly different figures to what Ann has found.

Damn, I stuffed up, that was the chart for Consumer Confidence! I wonder if I put the Oil Rig count in Economics!

Let's look at a rig count this time! Thank you very much Parse for calling this out!

Oil price discussion and analysis

Sdaji

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