(MENAFN- ProactiveInvestors - UK) Fuller Treacy Money, Thu
OPEC Meeting Preview
Thanks to a subscriber for this report from DNB which may be of interest. Here is a section:
We agree that the market is fixing itself. The headline on our presentation that we bring to customer meetings has since the start of this year been 'Non-OPEC to painfully balance the market by moving from record growth in 2014 to production declines in 2016.' We still believe this is the correct way of looking at this market and we never factored in any production limiting help from OPEC in our supply-demand balance despite being bullish to oil prices since January. In our report from January 13 we forecasted Brent prices of 50 $/b for Q2 this year. This was then way above consensus as Brent then traded at 30 $/b. We argued that one can be bullish to oil prices without production limiting policies from OPEC. We are now seeing the signs that the Saudi strategy is working and it has mainly to do with swings on the supply side rather than changes to demand. We can mention that the growth in global oil supply was 2.3 million b/d in 2014 and 2.7 million b/d in 2015, but moving into Q2-2016 the growth in global oil supply (also including OPEC of course) is gone and will probably turn net negative for the rest of the year. Our own global supply-demand balance is suggesting that global oil supply will not grow in 2016, despite OPEC supply growing 0.7 million b/d. This is the key to the rebalancing.
May 2016 is the first month since December 2013 that our global supply-demand balance is in a deficit. The market has been helped to reach this deficit quicker than what we thought at the beginning of this year particularly due to large unplanned outages in Nigeria and Canada. Canada has during May lost about 0.9 million b/d in production due to the wild fires while Nigeria has lost about 0.5 million b/d due to force majure on Forcados, Escravos, Bonny Light and Qua Iboe. All but Qua Iboe has been caused by sabotage against oil facilities executed by militant groups where The Niger Delta Avengers is the most famous. Canadian production will likely be back to prior levels by July after ramp up through June, but Nigerian output will be slow to return as militants are set to continue to attack facilities through the rest of this year.
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
The oil market remains in a state of flux because oil producers have been forced to take a hard look at their business models. The response to low prices has been to cut investment to the bone and simply pump what is most expedient. The result is that US production has begun to decline while the Nigerian and Canadian outages have added to the near-term bullish case for oil.
Musings from the Oil Patch June 1st 2016
Thanks to a subscriber for this edition of Allen Brooks' energy report for PPHB. Here is a particularly interesting section on autonomous trucking:
The new topic being opened by efforts such as Otto and the platooning demonstration in Europe is the impact on fuel and labor costs within the trucking industry. In the United States, trucks drive 5.6% of all vehicle miles and are responsible for 9.5% of highway fatalities, according to Department of Transportation data. Because heavy-duty trucks have a significantly lower fuel-efficiency performance, they account for a larger share of diesel fuel consumption than diesel cars or other types of equipment. Because diesel fuel is included in distillates, we cannot determine the exact weekly volumes. However, we know that for the week ending May 20, distillate volumes of slightly over 4 million barrels a day represented 20% of total fuel supplied in the U.S. By examining the latest inventory data, distillates are broken down by the amount of sulfur in the fuel. Diesel fuel for vehicle use needs to be low sulfur 15 parts per million or less. That fuel category accounted for 88% of all the distillate in storage, therefore we would think this is a reasonably close approximation of the highway quality diesel fuel being supplied to the U.S. market. If 62% is used by over-the-highway trucks, then the daily consumption is approximately 2.2 million barrels. Improved fuel savings from autonomous technology could eventually account for upwards of 200,000 barrels a day in savings.
Autonomous vehicle technology is being hailed as a way to reduce the number of accidents. The largest impact of the technology, however, may be on the employment of truck drivers. There are more than three million truck drivers in this country. According to the American Trucking Associations, the truck industry accounts for one of every 15 jobs in the United States. By eliminating the need for second drivers on many trucks due to the ability of the primary driver to fulfill his rest obligations while the truck drives itself, there will be a negative employment impact from autonomous technology.
Although perceived as a negative, autonomous technology might actually become a positive as the trucking industry deals with an aging workforce and a less-than-attractive employment career as long-haul driving can be tedious and keeps drivers away from home for extended time periods. While younger drivers enjoy the first and last miles of truck driving, they wish to avoid the boring portion, which autonomous technology would eliminate. In the U.S., according to consultant Oliver Wyman, by 2023 it is projected that there will be shortfall of 240,000 drivers, or approximately 8% of the estimated current number of truck drivers.
Canada has a similar employment outlook for its highway trucking industry. According to the Canadian Trucking Alliance there are about 300,000 long-haul truck drivers. Similarly, the Canadian Trucking Alliance estimates that the Canadian industry will have a shortfall of 48,000 drivers by 2024 about 15 per cent of the total driving force due to an aging workforce and a less-attractive employment career.
Another impact of autonomous technology for trucks is that vehicles can be kept on the highway for more hours per day. That could not only reduce the need for additional drivers, but it could also reduce the cost for transporting goods, further contributing to deflationary forces in the economy.
All of these considerations influenced our previous article's conclusion that autonomous trucks were more likely to be on the roads before autonomous cars. That may be why Mr. Levandowski left Google. He said that his decision to leave was motivated by being eager to commercialize a self-driving vehicle as quickly as possible. At Google, he was responsible for drafting legislation to permit self-driving vehicles, which ultimately became law in Nevada. While certain states such as California have motor vehicle regulations that would prohibit the idea of trucks traveling on the freeway with only a sleeping driver in the cab, other states currently do allow it. 'Right now, if you want to drive across Texas with nobody at the wheel, you're 100 percent legal,' said Mr. Levandowski. Stay tuned for self-driving trucks on a freeway near you.
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
The technology behind autonomous vehicles is progressing towards greater utility and it makes sense that haulage vehicles represent the primary source of demand considering the high cost of fuel, personnel and regulations. It represents an additional example of the deflationary role technology has and the benefits that accrue to consumers as a result.
China Buying Sparks Bitcoin Surge
This article from the Wall Street Journal may be of interest to subscribers. Here is a section:
Huobi and OKCoin, two Chinese exchanges, now collectively account for some 92% of global trading in bitcoin.
The surge in bitcoin buying this weekend could be the latest sign of how Chinese investors are moving money between asset classes quickly in search of high returns. In the past year, equities, bond and commodities markets in China have in turn seen massive surges of new investing, often followed by a collapse in prices as funds have moved elsewhere.
'There's a lot of hot money in China that has to go somewhere,' says Du Jin,chief marketing officer at Huobi. Huobi has seen a surge of new registrants in the past one month, he said.
Expectations that new supply of the virtual currency will decrease next month could also be behind the latest price surge. The creation of bitcoin via a complicated computing process called 'mining' gets more challenging over time, thanks to a mechanism that cuts the number of bitcoin that can be created in half every four years in order to limit supply.
Eoin Treacy's view
I highlighted the reweighting of Bitcoin in December and as the limit approaches speculation in the cryptocurrency is increasing. The nitty gritty of the process is that in order to inhibit inflation the reward for solving a bitcoin problem halves every four years or, more specifically, every time 210,000 blocks are created. That suggests some time in July will represent the next reweight. Supply will decrease so the value of bitcoins in existence may increase in anticipation of that event.
Fuller Treacy Money