Drumbeat: August 10, 2013

From The Oil Drum - Discussions about Energy and Our Future
August 10, 2013 - 10:09am

Is peak oil demand just around the corner? For years, there’s been lots of debate over “peak oil” — the notion that, at some point in the near future, the rate of global oil production will bump up against a hard ceiling. This is generally considered a gloomy prospect. But another, related concept has started to bubble up in energy discussions lately. It’s the notion of peak oil demand. This is the idea that the world’s appetite for oil may not be bottomless after all. Thanks to a combination of price increases, improvements in vehicle efficiency, as well as the advent of alternative fuels and electric cars, we may reach a point in the coming decades where the world’s demand for oil actually starts declining. And if that happens before peak oil production hits, well, that would come as a relief. China set to become world’s biggest oil importer China is poised to overtake the United States as the world’s leading oil importer in October, part of a long-term trend that is forcing the Asian giant to find new supply sources including Canada to fuel its economy. Chinese crude imports will exceed those of the United States for the first time on a monthly basis in October, and for the entire year in 2014, the U.S. Energy Information Administration said Friday. Oil Rises First Time in 6 Days on China Industrial Output West Texas Intermediate crude climbed for the first time in six days as industrial production increased in China, the second-biggest oil-consuming country. Futures advanced 2.5 percent after data from China’s National Bureau of Statistics showed factory output increased 9.7 percent in July, 0.8 percentage point more than forecast in a Bloomberg survey. There have been recent “signs of strength” in oil markets with a 3.1 million-barrels-a-day surge in world refinery operating rates in June, the International Energy Agency said in a report today. “The industrial numbers out of China were impressive,” said John Kilduff, a partner at Again Capital LLC, a New York hedge fund that focuses on energy. “This comes on top of a week’s worth of positive Chinese data.” Relief at the pump: Gas prices on the decline Consumers are about to get a break at the gas pump for the rest of 2013 and much of 2014, analysts say. Gasoline prices typically head lower after the peak summer driving season, and despite a blip Friday, wholesale prices reflecting September levels are slumping. Coupled with ample supplies and lower autumn demand, the national average price of regular-grade gasoline is likely to fall to about $3.40 in the coming weeks. That's y about 5\% less than Saturday's $3.56 national average. Biofuel Credit Shortage to Boost U.S. Gasoline Exports, IEA Says A shortage of biofuel credits needed for gasoline sales in the U.S. may lead to an increase in exports of the fuel from America in 2014, according to the International Energy Agency. Ethanol Weakens Against Gasoline as Higher Imports Boost Supply Ethanol weakened against gasoline on higher import levels of the biofuel and speculation that a robust corn crop will lift production. The US Is Well On Its Way To Replace Saudi Arabia As The World's Largest Oil Producer Perhaps the most important lesson one can ever hope to learn from this development is what it means for energy markets generally: that energy markets are governed by the very same simple principles as any other market. There is a reason this happened in the US or Canada and not, say, in Venezuela or China – despite the fact that they sit on unconventional resources at least as plentiful as those in the US and Canada (oil sands in Venezuela, shale formations in China). This reason has nothing to do with resource endowments below ground but everything to do with competition and markets above ground. Innovation tends not to happen in economies where government control extinguishes the private reward for trial and error - in energy markets just as in any other industry. US unconventional plays will help reduce imports from abroad Unconventional oil and gas plays will continue to drive US and Canadian production for years, with the Bakken formation in North Dakota and Montana along with the South Texas Eagle Ford shale play accounting for much of the tight oil production increase, said analysts with Wood Mackenzie Ltd. The Bakken and Eagle Ford are expected to account for more than half of WoodMac’s anticipated North America tight oil production volumes of mor

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