The Energy Report - Considering China

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By Phil Flynn | March 5, 2013 1:46 AM EST

Price Futures Group

Oil prices are holding up better than you might think considering the negative mood out of China this morning. Psychological support for oil near the $90.00 a barrel area and the gap at 8996 has bearish traders a bit concerned about piling on at this point. Still Chinese property stocks got hammered, hitting the daily limit down in some cases as the Chinese government decided to put the hammer down on their real estate sector. The Wall Street Journal said, "State Council said authorities will strictly enforce a personal income tax of 20% on profits from home sales. Previously, home sellers had a choice to pay a 20% tax on the profit from property they sold or a 1% to 3% tax on the selling price, which is more widely opted for. The statement didn't offer a date for the move."

The new rules would mean that a seller would have to pay a 20 million yuan ($3.2 million) tax on a home bought for 100 million yuan and sold for 200 million yuan, a sharp increase from the previous 2 million to 6 million yuan the seller might pay under current rules. China's policy makers were responding to evidence that-after three years of attempts to control prices-the property market is heating up again. Beijing's top leaders fear that fast-rising home prices and the lack of affordable options could threaten economic and social stability."

 Oil prices also got pressure from some progress allegedly with Iran. Market talk of Iranian tankers being filled with oil did not exactly improve the market mood. Bloomberg reported that at least seven Iranian oil tankers able to hold 14 million barrels of crude are anchored in the Persian Gulf, ship-tracking data compiled by Bloomberg show. The Oceanic, Companion, Freedom, Valor, Millionaire, Maharlika and Tamar haven't left the region since the start of last month, according to data compiled by IHS Inc., an Englewood, Colorado-based research company. Signals were captured from each of the ships today. All except the Millionaire were at least 80 percent of their maximum depth in the water, data show.

 We should see a big drop in crude supply this week as the Gulf Coast saw imports slowed by fog in the shipping channels. Crude supply could fall by 4.o million barrels. Gasoline should fall by 1.0 million barrels as refiners start to drawdown the winter blend supply. Distillates should fall by 1.0 million and refinery runs should increase slightly by 0.5%.

 The good news is that we are getting more bang from a barrel. The Energy Information Administration reports that In the United States, energy intensity has been declining steadily since the early 1970s and continues to decline in EIA's long-term projection. A country's energy intensity is usually defined as energy consumption per unit of gross domestic product (GDP). Greater efficiency and structural changes in the economy have reduced energy intensity.

 From 1950 to 2011, energy intensity in the United States decreased by 58% per real dollar of GDP. Until the 1970s, energy intensity was falling relatively slowly, less than 1% per year. The events surrounding the Arab oil embargo in 1973 were associated with a dramatic rise in energy prices. Before then, energy prices fluctuated only about 3% from year to year.

In 1974, energy prices rose 56% above the previous year, leading to changes in both national policy, such as the establishment of vehicle efficiency standards and consumer attitudes. In addition, the role of energy-intensive industries in the United States declined with continuing structural changes in the economy. Since 1973, energy intensity has declined at a rate closer to 2% per year, although with a few noticeable annual increases. The 2013 Annual Energy Outlook Reference case projects that this average annual decline of 2% will continue through 2040.

Projections to 2040 in the 2013 Annual Energy Outlook show each sector's energy intensity generally declining. Specific drivers of these declines include:

Residential energy intensity, measured as delivered energy used per household, declines about 27% from 2005 to 2040.

 

 

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Thanks,
Phil Flynn

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