Found this interesting article over at oilprice.com this morning, posted on Christmas Day:
Why The Oil Price Bear Market Persists | OilPrice.com
Of special note from the article, the author offers a multi-faceted list of why global oil demand is weakening:
“The problem with dropping demand, of course, is the potential for the creation of a “supply glut” that leads to a continued suppression in oil prices.
The headwinds to higher oil prices from the demand side come in a variety of forms:
• Weak economic global growth over the last decade which will remain weak going forward
• Slow and steady growth of renewable/alternative sources of energy
• Technological improvements in energy production, storage and transfer, and;
• A rapidly aging global demographic
Add to those issues that over the next few years EVERY major auto supplier will be continuously rolling out more efficient automobiles including larger offerings of hybrid and fully electric vehicles”
“Demand destruction” of oil is something I’ve heard discussed for some time, now. I think, due to our shared interest in the electrification of transport, it would be easy to assume the lion’s share of demand destruction would arise from an ever-increasing adoption of EVs. As one who has studied energy related matters (admittedly on/off vs. intensely) I’ve always found it involves sifting through a great number of simultaneous moving parts to distill any distinctive trends pertaining to oil and energy markets. This article is one of the more succinct, condensed interpretations of world trends to date, but it leaves some unaddressed questions and thoughts in my mind:
Why The Oil Price Bear Market Persists | OilPrice.com
Of special note from the article, the author offers a multi-faceted list of why global oil demand is weakening:
“The problem with dropping demand, of course, is the potential for the creation of a “supply glut” that leads to a continued suppression in oil prices.
The headwinds to higher oil prices from the demand side come in a variety of forms:
• Weak economic global growth over the last decade which will remain weak going forward
• Slow and steady growth of renewable/alternative sources of energy
• Technological improvements in energy production, storage and transfer, and;
• A rapidly aging global demographic
Add to those issues that over the next few years EVERY major auto supplier will be continuously rolling out more efficient automobiles including larger offerings of hybrid and fully electric vehicles”
“Demand destruction” of oil is something I’ve heard discussed for some time, now. I think, due to our shared interest in the electrification of transport, it would be easy to assume the lion’s share of demand destruction would arise from an ever-increasing adoption of EVs. As one who has studied energy related matters (admittedly on/off vs. intensely) I’ve always found it involves sifting through a great number of simultaneous moving parts to distill any distinctive trends pertaining to oil and energy markets. This article is one of the more succinct, condensed interpretations of world trends to date, but it leaves some unaddressed questions and thoughts in my mind:
- The so-called “fracking miracle” mentioned in the article; how long term sustainable is it? Currently it is being portrayed as a concurrent player where an oil glut exists parallel to weakening global demand. Anyone familiar with fracked wells understands each well has a much faster decline rate than conventional oil wells.
- One or more of the charts posted in the article mention the 2008 crash in oil prices was preceded by widespread fears of “peak oil”, given that demand was far outstripping supply at the time. To my understanding, the original “peak oil” theory developed by M. King Hubbert was based on conventional oil well decline rates, not fracking production and decline rates.
- Given the above assumption regarding the basis of Hubbert’s thesis is true, could it be that the current fracking boom and huge outflow of oil production is masking the reality that conventional oil production has indeed peaked, and once the “sugar rush” of fracking begins to wear off, the world global oil supply picture may begin reverting from glut to “meets demand” to potentially lagging behind demand if the rate of demand destruction lags a concurrent decline in oil production?
- Or, alternate scenario, fracking output growth continues, checked only by oil price fluctuations and the cost of capital for drilling and extraction, where demand destruction passes a tipping point to where curtailments of oil production in response, in order to raise the price per barrel, is ineffective? In other words, oversupply becomes more or less permanent?
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