Just as quickly as they spiked, crude oil prices have now fallen back to their lowest levels in 6 weeks, trading at the subdued levels seen in late November before the OPEC+ club announced its renewed oil supply deal. Despite assassinations, embassy stormings and ballistic missile retaliations, the US-Iran situation has returned to an uneasy calm, and crude prices with it.
At the height of the recent crisis – in the immediate aftermath of a targeted US drone strike on Iranian general Qaseem Soleimani in Iraq – Brent prices jumped to almost US$71/b as it looked like war was imminent. Iran vowed revenge. And they got it, launching over a dozen missiles on January 7 against US military assets in northern Iraq. However, in the process, the Iranian attack also downed a Ukraine Airlines plane that had just taken off from Tehran, killing all 176 passengers. No American casualties were recorded in the ballistic missile attack – named Operation Martyr Soleimani by the Islamic Revolutionary Guard Corps – and instead, Iran had a diplomatic crisis on its hand. The Iranian population swung from being united against the US for the Soleimani assassination to protesting its own government over the ‘accidental’ downing of the commercial flight. On the other hand, the US surprisingly took a tamer line after threatening to ‘go ballistic’ on Iran if it retaliated for Soleimani’s assassination. Yet, President Donald Trump merely said that Iran was ‘standing down’ after it launched the barrage of missiles, walking back from the brink of war. Perhaps the White House was stung by criticism of overstepping boundaries – including not officially informing Congress of the military action and possibly contravening UN war conventions – but the net result is that both countries are both in a position to favour a tense stalemate instead of outright belligerence.
And, therefore, the price risk associated with war has dissipated. Brent crude is now trading at US$64/b and WTI further back at US$58/b. Oil has other things to worry about other than the US-Iran face-off. Expectations of a growing glut of crude oil and oil products globally are now translating into hard data. The EIA reports that crude and gasoline stocks in the US rose over December 2019, while global refinery crack spreads – which calculate the profit margins per barrel of crude for refiners – are narrowing. Against steady crude prices, that’s usually a sign of weakening demand. The IEA said that it expects oil demand growth to be ‘weak’ in 2020 against historical levels, suggesting that the market will be ‘well supplied’ with an implied surplus of 1 mmb/d. Demand is also muted at a time when crude supply is cresting a rising tide, as big volumes of additional supply from Norway, Guyana, Brazil and (of course) the US are sloshing around trying to find buyers.
Much of this situation was already predicted. And it is the reason why the OPEC+ club chose to extend its supply quota to the end of March 2020, in hope of stemming the glut. The latest data from OPEC shows that the club’s production fell to 29.5 mmb/d – a 50,000 b/d decrease m-o-m – with Saudi Arabia leading compliance, while Nigeria and Iraq remain above their quotas. Adherence was stressed as a key point in the December OPEC+ decision, and output over the next two months will be keenly watched ahead of a scheduled extraordinary OPEC meeting in March that will decide the fate of the quotas. Meanwhile, Russia’s production of crude and condensate reached a new post-Soviet high of 11.25 mmb/d in December, although it may still yet meet its OPEC+ target to reduce crude by 300,000 b/d through the exclusion of condensate from the quotas. The threat of war provided a brief distraction from the current woes in keeping crude prices steady, but as that abates, the same problems are persisting and it is these same problems that will keep a firm lid on crude prices in the first half of 2020.
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In its latest Short-Term Energy Outlook (STEO), released on January 14, the U.S. Energy Information Administration (EIA) forecasts year-over-year decreases in energy-related carbon dioxide (CO2) emissions through 2021. After decreasing by 2.1% in 2019, energy-related CO2 emissions will decrease by 2.0% in 2020 and again by 1.5% in 2021 for a third consecutive year of declines.
These declines come after an increase in 2018 when weather-related factors caused energy-related CO2 emissions to rise by 2.9%. If this forecast holds, energy-related CO2 emissions will have declined in 7 of the 10 years from 2012 to 2021. With the forecast declines, the 2021 level of fewer than 5 billion metric tons would be the first time emissions have been at that level since 1991.
After a slight decline in 2019, EIA expects petroleum-related CO2 emissions to be flat in 2020 and decline slightly in 2021. The transportation sector uses more than two-thirds of total U.S. petroleum consumption. Vehicle miles traveled (VMT) grow nearly 1% annually during the forecast period. In the short term, increases in VMT are largely offset by increases in vehicle efficiency.
Winter temperatures in New England, which were colder than normal in 2019, led to increased petroleum consumption for heating. New England uses more petroleum as a heating fuel than other parts of the United States. EIA expects winter temperatures will revert to normal, contributing to a flattening in overall petroleum demand.
Natural gas-related CO2 increased by 4.2% in 2019, and EIA expects that it will rise by 1.4% in 2020. However, EIA expects a 1.7% decline in natural gas-related CO2 in 2021 because of warmer winter weather and less demand for natural gas for heating.
Changes in the relative prices of coal and natural gas can cause fuel switching in the electric power sector. Small price changes can yield relatively large shifts in generation shares between coal and natural gas. EIA expects coal-related CO2 will decline by 10.8% in 2020 after declining by 12.7% in 2019 because of low natural gas prices. EIA expects the rate of coal-related CO2 to decline to be less in 2021 at 2.7%.
The declines in CO2 emissions are driven by two factors that continue from recent historical trends. EIA expects that less carbon-intensive and more efficient natural gas-fired generation will replace coal-fired generation and that generation from renewable energy—especially wind and solar—will increase.
As total generation declines during the forecast period, increases in renewable generation decrease the share of fossil-fueled generation. EIA estimates that coal and natural gas electric generation combined, which had a 63% share of generation in 2018, fell to 62% in 2019 and will drop to 59% in 2020 and 58% in 2021.
Coal-fired generation alone has fallen from 28% in 2018 to 24% in 2019 and will fall further to 21% in 2020 and 2021. The natural gas-fired generation share rises from 37% in 2019 to 38% in 2020, but it declines to 37% in 2021. In general, when the share of natural gas increases relative to coal, the carbon intensity of the electricity supply decreases. Increasing the share of renewable generation further decreases the carbon intensity.
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020
Note: CO2 is carbon dioxide.
GEO ExPro Vol. 16, No. 6 was published on 9th December 2019 bringing light to the latest science and technology activity in the global geoscience community within the oil, gas and energy sector.
This issue focusses on oil and gas exploration in frontier regions within Europe, with stories and articles discussing new modelling and mapping technologies available to the industry. This issue also presents several articles discussing the discipline of geochemistry and how it can be used to further enhance hydrocarbon exploration.
You can download the PDF of GEO ExPro magazine for FREE and sign up to GEO ExPro’s weekly updates and online exclusives to receive the latest articles direct to your inbox.
Headline crude prices for the week beginning 13 January 2020 – Brent: US$64/b; WTI: US$59/b
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