Oil Demand: The Price Is Right Or The Customer Is Right?

Gasoline prices are up about 30 cents a gallon for the average American over the past year. At about $2.80 a gallon, gasoline is nowhere near the nearly $4 level that held before oil prices crashed. Half a world away, India's drivers have it even worse. Pump prices in Delhi are actually higher than in the summer of 2014 and have become a political flashpoint ahead of next year's elections. Similarly, Beijing's drivers are paying prices not far off those that prevailed before oil began falling. In same time, the Saudi Arabia says it would offer more oil to refiners for November to replace #Iran losses. But certainly it's going to come at a higher price for Asian buyers, particularly for Arab Medium (at its highest OSP in nearly 5 years).... And, someone will say- it's ok, it can be much worse....Worse mean $100 per barrel...

 

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Trends. Demand for electricity worldwide to double by 2040 while the demand for oil, coal, gas will grow by about 30%. 

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Oil becomes way too expensive for consumers on market.

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This is spot on.

Saudi keeps saying it has spare capacity for customers.

Of course it has... but also more oil at much higher prices than usual.

My guess why oil is spiking is that many customers are hedging prices at current levels - in anticipation of much higher prices that Saudi will offer.

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When cost increases to much, people permanently shift away from oil. It also gives incentives to ev's and once they become mainstream... that will snowball within 5-6 yrs unlike 20-30 yrs which they have planned for.

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Prices have already risen to a level that has contributed to a slowdown in economic growth and oil consumption in the past. 
“Expensive energy is back at a bad time for the global economy,” the chief executive of the International Energy Agency has warned. “It is now high time for all the players, especially those key producers and oil exporters, to consider the situation and take the right steps to comfort the market,” he added.

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Nice. So, oil prices enter the danger zone for consumers.

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Fuel prices are already extortionate... I'm not optimistic it soon can go lower. On the contrary.

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Fuel price is rising, according to this trend interest rates are the next?

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2 hours ago, Kaiser Soze said:

This is spot on.

Saudi keeps saying it has spare capacity for customers.

Of course it has... but also more oil at much higher prices than usual.

My guess why oil is spiking is that many customers are hedging prices at current levels - in anticipation of much higher prices that Saudi will offer.

That's a very good point.  Hedging is what this is ALL about for the customers, after all.

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1 hour ago, ThunderBlade said:

Fuel price is rising, according to this trend interest rates are the next?

Interest rates in the U.S. have been rising since last year and, if I'm not mistaken, are scheduled to continue rising into the second or third quarter of next year.  We're already there and a lot of people are concerned about it, not just President Trump.

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(edited)

The reason prices are so volatile for oil is because oil is price inelastic.  Consumer will not use much less when prices go up and they don't use much more when prices go down.  Therefore, prices have to go up a lot to reduce demand in times of shortage and they have to go down a lot to create demand in times of abundance.  

Demand is probably more elastic in countries like India were fuel prices take up a bigger chunk of peoples incomes but in rich countries prices would have to go up a lot to get people to car pool, take the bus or drive smaller vehicles. 

Unfortunately, the only thing that substantially reduces demand in rich countries is a recession.  People use a lot less gasoline when they no longer have a job to drive to.

Edited by PeterfromCalgary

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Russia and Saudi Arabia struck a private deal in September to raise oil output to cool rising prices and informed the United States before a meeting in Algiers with other producers, four sources familiar with the plan said.

U.S. President Donald Trump has blamed the Organization of the Petroleum Exporting Countries (OPEC) for high crude prices and called on it to boost output to bring down fuel costs before the U.S. congressional elections on Nov. 6.

The deal underlines how Russia and Saudi Arabia are increasingly deciding oil output policies bilaterally, before consulting with the rest of OPEC.

The sources said Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak agreed during a series of meetings to lift output from September through December as crude headed towards $80 a barrel. It is now over $85.

“The Russians and the Saudis agreed to add barrels to the market quietly with a view not to look like they are acting on Trump’s order to pump more,” one source said.

“The Saudi minister told (U.S. Energy Secretary Rick) Perry that Saudi Arabia will raise output if its customers asked for more oil,” another source said.

Originally, the two countries had hoped to announce an overall increase of 500,000 barrels per day (bpd) from Saudi-led OPEC and non-OPEC Russia at a gathering of oil ministers in Algiers at the end of September.

But with opposition from some in OPEC, including Iran which is subject to U.S. sanctions, they decided to defer any formal decision until a full OPEC meeting in December.

PERRY LOOPED IN
Since then, Reuters has reported that Riyadh planned to lift output by some 200,000 bpd to 300,000 bpd from September to help fill the gap left by lower Iranian output due to the sanctions.

Russian output rose 150,000 bpd in September.

“I would expect Russia’s oil production will hover at around 11.4 to 11.6 million bpd until the end of 2018 and may increase further to 11.8 million bpd later on in 2019,” a source at a major Russian oil company said.

Russian produced 11.36 million bpd in September, up from 11.21 million bpd in August, Energy Ministry data showed.

Perry was made aware of the Saudi-Russia plan to lift output before the Algiers gathering, meeting with Falih three times in September and Novak once. The three did not meet together.

Perry’s spokeswoman Shaylyn Hynes did not comment on details of the talks but said the energy secretary, “continues to be engaged with leaders from other major oil producing nations and remains confident in their ability to boost output if needed”.

She said Perry had in recent meetings “impressed upon his counterparts that keeping supply up is important for the global economy”.

Oil prices rose to $85 a barrel this week as buyers of Iranian crude wound down their purchases to meet the terms of U.S. sanctions on Tehran.

Sources said Riyadh would help fill that shortfall because buyers needed replacement supplies. Saudi Arabia has spare capacity to produce oil at a higher rate and holds a large volume of crude in storage.

At the same time, Saudi Arabia is keen to maintain unity among the so-called OPEC+ alliance, a group comprising OPEC states, Russia and several other producers that has agreed on output curbs. That’s because it may need to change course and seek the collaboration of OPEC+ for any future production cuts.

FOOTBALL DIPLOMACY
In the run up to the private deal with Russia, Falih flew to the United States during the second week of September where he and fellow Texas A&M University alumnus Perry attended a football game in College Station, Texas.

Falih then held official talks with Perry in Washington on Sept. 10, the U.S. Energy Department has said.

Perry flew to Moscow two days later to meet Novak, while Falih also met Novak in Moscow a day later.

Perry told Reuters during his Moscow visit that Saudi Arabia, the United States and Russia had enough capacity between them to compensate for the loss of Iranian supply over the next 18 months.

After Moscow, Falih and Perry met again in Vienna where they attended an event in the Austrian capital, sources said.

“Perry was aware that Russia is going to ramp up oil output,” a third source familiar with talks said.

It was at this point that Falih and Novak discussed announcing a 500,000-bpd increase at the Sept. 23 Algiers meeting of OPEC and non-OPEC countries. The plan did not materialize, with any formal decision deferred until a regular OPEC meeting in Vienna on Dec. 6.

“Saudi Arabia is not going to flood the market and risk a price crash. Saudi Arabia has to work with other producers and see what are they doing, who is raising exports and to which market,” another source said.
Source: Reuters (Additional reporting by Timothy Gardner in Washington; editing by Richard Mably and David Clarke)

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