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Global oil demand and Electric vehicles, UAE and OPEC, Russia, Iran, China, India and more
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Anas Alhajji
CHART OF THE DAY: Bullish for oil medium and long term
Figure (1)
Number of Cars in the World vs. Electric Vehicles (Four Scenarios, billion cars)
Source: EOA, 2023 and EIA, 2023
Commentary:
To meet future energy demand, the world needs all types of energy sources, as well as the required technologies that can help reduce global pollution, which according to the World Bank is “the largest environmental cause of disease and premature death.”
We support all energy sources, including wind and solar, and all transportation technologies, including hybrid, electric, and hydrogen. But we are against hype.
The impact of hype and its cost on society is massive. The hype around renewables and electric vehicles leads to a decline in investments in other energy sources, which in its turn creates an energy crisis accompanied by inflation and low economic growth.
This brings us to the Chart of the Day: Figure (1) above shows the current number of cars in the world, including electric vehicles. It reveals the total number of cars expected by 2040, a number that is close to various forecasts, including that of the US Energy Information Administration (EIA). The chart also shows various scenarios for electric vehicles: 140 million, 280 million (double the first scenario), 510 million (what’s needed to keep the number of ICE vehicles in 2040 similar to today’s number), and 600 million (which is a high-end number).
EOA’s Main Takeaway:
We are bullish on oil in the medium and long term relative to current forecasts by various international organizations, banks, and oil majors. Readers can choose other numbers for electric vehicles (all types)— try to keep it a realistic number. But even if you pick a different number, you will realize the hype we mentioned above.
About 510 million electric cars are needed in the world by 2040 to keep the number at today’s level. Any number below that means demand for oil will continue to increase (assuming no improvements in ICE fuel economy, and the make-up of cars remains the same (small cars vs SUVS and light trucks))
But even at 510 million electric vehicles, oil demand will continue to increase if electric vehicles replace ICE efficiency vehicles while most of the increases in the future, especially in emerging and developing economies, will be registered in SUVs and light-duty trucks.
ICE fuel economy is expected to improve over time, but not in the way the IEA and OPEC have predicted. Relying on current technologies, they’ve all exaggerated the impact of fuel economy on global oil demand by several million barrels a day.
Even if a new engine technology emerges (review our main takeaway regarding the news yesterday about Renault and Geely signing a pact with Aramco for engine venture), the impact before 2040 will be limited even if a major achievement occurs in the next three years. It takes time for a new technology to spread, and time to change fleets.
STORY OF THE DAY:
WALL STREET JOURNAL: Saudi Arabia and U.A.E. Clash Over Oil, Yemen as Rift Grows
Summary:
The Wall Street Journal cited today Emirati officials as saying that the United Arab Emirates "is having an internal debate about leaving OPEC." The report also portrayed Saudi Arabia and the UAE as locked in deep disagreements over issues related to security in Yemen, and energy. Following the WSJ report, the Brent benchmark dropped 1.8% to $83.25/bbl.
However, as the WSJ report caused some panic, Bloomberg cited official sources as denying that the UAE has plans to leave OPEC, while Reuters quoted its own sources as saying that the report about the UAE exiting the oil group is “far from the truth."
EOA's Main Takeaway:
Our subscribers were the first to know that this news needed to be ignored. Such claims about oil producers exiting OPEC have been published for years now, not only regarding the UAE, but also several other OPEC members, including Saudi Arabia. We are NOT saying that the WSJ report is inaccurate. We are only noting here that this is old news that keeps being recycled and needs to be put into proper context.
Reports about rifts between Saudi Arabia, OPEC's de facto leader, and the UAE over oil production have been in the media for the past few years, and some of them may have been blown out of proportion. We share some of them below. Our view remains the same: reports will continue to emerge regarding UAE plans to exist OPEC, but nothing will happen on the ground. Readers who would like to know more details about this topic can arrange a private conversation with the EOA over the phone or via Zoom.
REUTERS, December 19, 2022: UAE will look to a world beyond OPEC
WSJ, July 5, 2021: In OPEC Deadlock, U.A.E. Steps Out of Saudi Shadow
WSJ, July 7, 2021: U.A.E. Pushes to Produce More Crude, Creating OPEC Deadlock
FINANCIAL TIMES, July 7, 2021: UAE-Saudi brinkmanship threatens Opec unity as oil prices soar
ARAB NEWS, November 23, 2020: UAE leaving OPEC? A storm in an oil barrel
NEWS OF THE DAY:
1- BLOOMBERG: Russia Oil Resilience May Fade on Lack of Technology, Yakov Says
According to the Moscow-based consultant Yakov and Partners, although Russia's oil production has been steady so far despite western sanctions, it is expected to drop "by 5% to 20% as the departure of international companies degrades the Russian industry’s ability to tap technically challenging resources,” Bloomberg reported.
EOA’s Main Takeaway:
This is bullish for the oil market. The 5% figure is close to our forecasts in our EOA 2023 Oil Market Outlook. Now that Russia has announced that it is cutting production by 500,000 b/d, the market has already priced that in. If our forecast turned out to be wrong, and Russian production sharply declined by more than 600,000 b/d this year, oil prices will rise further.
2- ARGUS: US preparing to start SPR refill purchases
The US Department of Energy wants to buy crude oil to partially refill the Strategic Petroleum Reserve (SPR), Argus reported. This comes after the US administration sold 180 million barrels last year to push prices downwards.
EOA’s Main Takeaway:
We believe it when we see it. If there are technical problems with releasing additional amounts of medium sour crude, the administration will have to act before the 2024 presidential elections. While the administration still has time, the oil market is going to get tighter by then.
Even if Washington goes for a refill, the impact will be limited. Readers who are interested in the SPR refill can read our weekly newsletter published on December 18.
3- BLOOMBERG: India’s Delayed LNG Terminals Present Hurdle to Modi’s Gas Goal
Although India wants to increase the use of gas in its energy mix, several of its proposed LNG import projects are facing delays, Bloomberg reported.
EOA’s Main Takeaway:
India needs additional gas supplies to meet economic and environmental goals. Achieving both requires less red tape and an end to abrupt changes in energy policies.
4- REUTERS: Lula bashes Petrobras dividends, says firm invested 'almost nothing'
Brazil's president has slammed Petroleo Brasileiro SA's dividend payments saying, "the company should have invested more in the country's growth."
EOA’s Main Takeaway:
There is no surprise here. As Brazil tilts left, along with many Latin American countries, we will see more nationalistic approaches to national oil companies and their revenues. Additional mergers will also lead to lower international investments, and this will result in lower oil production growth than current forecasts.
5- REUTERS: In big power producer Norway, plans for greener industry meet resistance
In its efforts to comply with the 2015 Paris Climate Agreement, Norway has been planning to "electrify big industrial sites", but it has been facing resistance from voters who are worried that their power bills will grow, especially that higher demand will likely exert pressure on limited supply, Reuters reported.
EOA’s Main Takeaway:
This is bullish for oil, gas, and coal. Some climate change policies are undoubtedly controversial. If governments do not compensate people for loss of real income, more citizens will vote against governments that push for climate change policies. Our view is that while lower investments in oil and gas will contribute to higher prices in the future, the fourth coming energy crisis will be the result of the failure of some green policies, which by default will increase demand for natural gas, oil, and coal. The problem is that this type of demand has not been counted for in any long-term outlooks other than our own EOA 2023 Oil Market Outlook.
6- REUTERS: China 2023 gas demand likely to grow, but LNG outlook cloudy - PetroChina Intl exec
Reuters cited an executive of PetroChina International as saying that while natural gas demand is expected to grow in 2023 as the economy gradually recovers, it remains to be seen if the LNG imports rebound will "depend on spot prices."
EOA’s Main Takeaway:
The statement by the executive of PetroChina is spot-on. China and Europe will compete for LNG shipments in the spot market in the upcoming summer months, and next winter. If China is concerned about this, Europe must be screaming now.
7- REUTERS: Two dead, dozens of police held hostage in Colombia in protest against oil company
A protest in part of Colombia’s San Vicente del Caguan municipality turned deadly as members of indigenous communities reportedly blocked access to an oil field in the area and started a fire as they demanded that Emerald Energy help improve the roads in the area.
EOA’s Main Takeaway:
We have seen these unfortunate events happening many times before and in different places. Disruptions in oil production or flow have occurred because energy companies and governments have neglected the needs of local communities where oil is produced or transported (this applies to the mining industry too).
Local communities do not enjoy the benefits of their own resources but instead end up suffering from environmental and health problems, and a lack of opportunities. What makes these events important is that they’ve been happening for decades now around the world with no end in sight.
8- S&P GLOBAL: US looks to tighten oil sanctions enforcement on Iran, de-escalate nuclear progress
Washington on Thursday slapped new sanctions on firms it said have been involved in transporting or selling Iranian petroleum or petrochemical products, among them two China-based companies.
EOA’s Main Takeaway:
Sanctions have never achieved their objectives. They’ve severely affected the lives of millions of citizens in sanctioned countries, and also enlarged the black market.
Although Washington has kept imposing sanctions on Iran, it made sure that Tehran stayed at the negotiating table, and kept tensions from escalating. In other words, the US does not want to antagonize Iran, particularly at a time when oil prices are sensitive, and ahead of the 2024 US presidential elections.
9- REUTERS: Norway's Equinor buys Suncor Energy UK in $850 million deal
Equinor has said that it will acquire the British oil and gas business of Canada's Suncor Energy for $850 million, according to Reuters.
EOA’s Main Takeaway:
Companies are awash with cash from the bonanza generated by the hype around sanctions on Russia. This is one way to expand companies’ reserve and production while reducing the risk by acquiring existing assets.
10- THE CRADLE VIA PRESS TV: Iran discovers world’s second largest lithium reserve
The Cradle cited Iranian state media as saying on February 27 that Iran has “discovered one of the world’s largest lithium reserves.”
EOA’s Main Takeaway:
We advise our readers to ignore the news given that this has yet to be confirmed by independent sources. At this point, we view it as propaganda. Probably they are trying to attract the attention of China after its deal with Afghanistan.
11- REUTERS: Offshore workers to strike at BP North Sea installations, union says
Around 50 offshore workers on BP North Sea installations have supported a strike due to disagreements over pay and overtime rates, Reuters cited a union as saying.
EOA’s Main Takeaway:
Most politicians and analysts get fixated on political events and incidents that involve explosions and fire in the oil and gas industry, knowing that labor strikes are more common and can sometimes reduce the flow of oil and gas. Some of these labor actions can lead to higher labor costs, which could force companies to switch to robots to do the work.