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From this month’s issue:
Last year, for the first time in history, over 50% of the world’s oil supply was consumed outside of the OECD. It’s ironic, and yet understandable, that 2014 was the year this structural change—in process for over a decade—finally completed itself. With global oil supply steady—and slightly increasing, even, in the second half of the year—a faltering of demand clearly hit oil prices, sending them on a 6 month tumble. But with OECD oil demand steady, it’s not that Non-OECD demand fell but rather that demand growth in the Non-OECD was clearly not strong enough to handle the constant inching up of global supply. Data from the broader energy system in China, the top Non-OECD economy, bears out this theme. Demand growth for electricity in China has actually been slow enough the past 24 months that it’s allowed renewables—hydropower, wind, and solar—to storm into the gap, thus depressing coal consumption. Were the Chinese economy growing more strongly, renewables would not be taking such a large share of marginal growth. Meanwhile, the growth phase slated to come in India is just getting started. Thus, suppliers of global commodities continue to face the now familiar interregnum where China’s growth is slower, but no single or collection of economies is ready to take the baton. Early data suggests both Chinese and Indian oil demand last year rose by roughly 2-3%. That’s positive, but it’s not enough demand at the margin to kick the oil futures market into higher gear. Oil prices now are completely at the whim of demand changes in the Non-OECD. Is that good or bad news? | see: Share of Global Petroleum Consumption: OECD vs Non-OECD 2005-2014.