Demand for oil continues to grow. That statement is just as true as it was on Thanksgiving 2014, when OPEC had its disastrous meeting in Vienna.
The International Energy Agency (IEA), whose predictions are infamous among industry analysts for being low and late, recently increased its estimate for global oil demand to 95.9 million barrels per day in 2016, an increase of 1.2 million barrels a day year-on-year. That increase in forecast was driven by demand in the first quarter that was 1.4 million barrels above the IEA's previous projections. Incremental demand was driven by strength from India, Russia and China.
So the IEA was too low in its first-quarter forecast, and by maintaining a forecast for the year that is still below the first quarter's growth rate, it is setting themselves up to be wrong on the low side (again) for demand in the second half of 2016. Some things are predictable.
Quibbles about the near-term forecasting prowess aside, the IEA's long-term demand figures are very instructive. Against 2016's forecast of 95.9 million barrels a day of demand and 2015's actual demand of 94.7 million, the rear-view mirror shows a pattern of strong growth since 2001. China was admitted to the World Trade Organization in December of that year and only contributed 4.8 million barrels a day, or 6.2% of that year's global oil consumption of 78 million barrels a day. By 2014, China was already accounting for 11.4% of global oil demand and I believe that ratio will continue to increase. Also, "Other Asia" added an incremental 4.1 million barrels of demand in the 2001-14 time period.
So, it's easy to see where oil's demand has come from. It's also easy to say, hindsight being 20/20, that concerns in the oil markets -- especially in late January and February -- of unassailable oil "gluts" having formed because of the shale revolution were overstated.
U.S. oil production fell to 8.8 million barrels a day in the EIA's latest weekly figures (week ended May 6), down from a peak of 9.6 million last summer and now sitting back where it was in September 2014, just as the oil bust was beginning.
So, we've "round-tripped" production in this country, and the U.S. was never the swing producer anyway. For that to have been the case, excess U.S. oil would have had to have been freely exported. Even after the repeal late last year of the moronic, four-decades-old crude export ban, we're still only exporting a trickle. In April, U.S. crude oil exports totaled under 0.4 million barrels a day, below January 2016's level and about even with the level of January 2015, before the ban had been lifted.
So China and India aren't getting their crude from Texas, and I think everybody knew that. Where are they getting it? The Persian Gulf. How is it being transported? On extremely large -- the length of five football fields -- oil tankers, mainly Very Large Crude carriers, or VLCCs.
So I'm continuing to play the consistent growth -- it's not a rebound -- in oil demand by owning the oil tanker stocks. The larger boats, the VLCCs, are outperforming the smaller classes -- Suezmax and Aframax -- as larger cargoes are demanded.
Thus, my favorite plays are the companies with strong exposure to the VLCC market, and lately I've been buying Euronav (EURN), DHT Holdings (DHT) and Navios Maritime Midstream Partners (NAP). I do think the "little" boats will have their day, too, so I'm still constructive, if somewhat less bullish, on Suez/Afra plays such as Nordic American Tankers (NAT), Teekay Tankers (TNK) and Tsakos Energy Navigation (TNP).
