Istanbul
Crude Oil traders turn their eyes towards Istanbul where OPEC and non-OPEC nations meet at the World Energy Congress in Turkey to finalize a global oil production cut. Even as some express skepticism about the impact of this OPEC and non-OPEC accord, prices have reacted positively. While some traders do not believe this will impact prices, the market reaction is more telling.
Russian oil minister Alexander Novak said that Istanbul is just for consultation and not to expect a deal. Of course that is what Saudi Arabia and Iran said before they announced an accord in Algiers. At least Saudi Arabia seems optimistic as the Wall Street Journal reports that Saudi Arabia’s energy minister Khalid al-Falih is saying that $60 a barrel for oil this year is not unthinkable. We also believe that $60 a barrel is not unthinkable. It may even be probable.
This comes against a backdrop of a U.S. oil market that has seen supply drop an average of almost 6 million barrels a week over the last five and a rise in oil rig counts at the expense of natural gas rigs. Global oil demand has stayed strong despite what the International Energy Agency says is improved energy efficiency despite lower prices.
The Baker Hughes rig count rose by 2 to 524. The overall rig count is 120 above the record low since Baker Hughes started counting rigs in 1949. The number of rotary rigs drilling for oil was up 3 at 428 down 177 rigs from a year ago. Natural gas rigs were down 2 at 94 and is 95 lower than last year's level of 189.
The drop in natural gas rigs is one reason natural gas production is falling. Natural gas soared as Hurricane Matthew did not take out as much power generation as feared.
The International Energy Agency Energy efficiency gains ground despite lower energy prices. A new IEA report says economies have needed less energy to grow in recent years, especially in China and other developing countries, but more vigorous policies are needed to achieve climate targets. The IEA says that, “As governments focus on implementing their commitments to save energy and reduce carbon emissions under the recently ratified Paris agreement, a new report from the International Energy Agency (IEA) highlights the progress made by energy efficiency policies around the world over the past year, particularly in China and other emerging economies.
The role of energy efficiency in the global energy transition is examined in the IEA’s Energy Efficiency Market Report 2016, which finds that its importance cannot be overstated. Simply put, there are no realistic or affordable energy and climate change policy without a sizeable and vigorous energy efficiency component. Energy intensity — the amount of energy used per unit of GDP — improved by 1.8% percent last year, meaning the global economy needed less energy to grow. The improvement exceeded the 1.5% gain of 2014, and was triple the average rate seen over the past decade. What’s more, last year’s gains were achieved in spite of lower energy prices, which generally dampen the enthusiasm for energy savings. However, the report also shows that while much has been accomplished, global progress is still too slow. Global energy intensity improvements need to reach at least 2.6% per year to put the world on a sustained pathway.