This summer, both France and the U.K. announced plans to ban the sale of vehicles powered by fossil fuels by 2040. These announcements followed news from Volvo that it would only produce electric vehicles (EVs) or hybrids beginning in 2019.  

This week the Guardian reported that China may be the next country to follow suit. The report states that Xin Guobin, China’s vice-minister of industry and information technology, recently said China has started “relevant research” and is working on a timetable for implementation. The policy would be implemented in the near future. 

These stories continue to provide momentum to the notion that the world is nearing the end of the age of oil. But how likely is it that these bans will actually come to fruition? I would say it depends entirely on the availability of cost competitive EV offerings. Otherwise, consumers will balk at the idea of spending more money on a lower level of mobility.

But 20+ years is a long time in the technology sector. I believe the next five years will provide a much clearer picture of whether these bans are likely to stick.

OPEC Sees Robust Demand Growth

This week OPEC released its Monthly Oil Market Report. In the report, the cartel revised global oil demand growth for 2017 upward by 50,000 barrels per day (BPD) to 1.42 million BPD. The group reports strong growth from the OECD Americas, Europe, and China. World oil demand for 2018 is expected to grow by 1.35 million BPD, an upward revision of 70,000 BPD from the previous report. 2018 growth is expected to be driven by OECD Europe and China.

Chinese oil demand rose by 0.69 million BPD in July, marking a 6% year-over-year (y-o-y) gain. Year-to-date data indicates an average growth of 0.55 million BPD, more than double the 0.21 million BPD growth recorded during the same period in 2016. (So much for slowing Chinese demand).  

Gasoline demand was higher by around 0.10 million BPD y-o-y, driven by robust sports utility vehicle (SUV) sales, which were around 17% higher than one year ago.

OPEC crude oil production decreased by 79,000 BPD in August to average 32.8 million BPD. This marks the first OPEC production decline since April and was primarily driven by sizable outages in Libya. 

Hurricane Update

The Department of Energy reports that as of September 12, four refineries in the Gulf Coast region remain shut down. These refineries have a combined refining capacity of 734,000 BPD, equal to 4.0% of total U.S. refining capacity. 

Five refineries are in the process of restarting after being shut down. These refineries have a combined capacity 1.3 million BPD, equal to 7.1% of total U.S. refining capacity. Production is assumed to be minimal until the restart is completed. 

At least six refineries in the Gulf Coast region were operating at reduced rates. These refineries have a combined total capacity of 2.3 million BPD, equal to 12.6% of total U.S. refining capacity.

I warned two weeks ago that we could expect to see substantial gasoline inventory drops in coming weeks. This week the Energy Information Administration reported a gasoline inventory decline of 8.4 million barrels — the largest week to week decline in gasoline inventories ever recorded. 

Goldman Sachs estimates that Hurricanes Harvey and Irma will reduce oil demand by 900,000 BPD this month. Due to its damage to oil infrastructure in Texas, Hurricane Harvey will reduce demand by 600,000 BPD in September while Irma could reduce demand by 300,000 bpd.

Some oil production remains offline, so the net impact will be a 600,000 BPD increase in inventories in September. Goldman Sachs expects demand to recover in coming months. 

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