Keith Kohl's note on Global Oil Demand Growth - Feb 20

[dan_s]

The Eternal Battle of Oil Bulls And Bears
KEITH KOHL | FEB 20, 2024
Strike up the music the band has begun… it's the Pennsylvania Polka.

Every February, a mass of people crowd into a tiny Pennsylvania town to freeze their butts off waiting to worship a rat. Having grown up a few hours away from that central PA town, I’ve made the sojourn before and can tell you firsthand it's worth the adventure… even if you’re not a Bill Murray fan.

This year was no different as more than 30,000 people made the trip to watch Punxsutawney Phil make his annual prediction at Gobbler’s knob.

With a packed audience in attendance and millions watching it live through television and streaming, Phil emerged from his burrow and failed to see his own shadow — telling us all loud and clear that an early spring was coming in 2024.

Of course, with that early spring comes an end to the seasonally weak cycle for oil demand.

The sooner the better, I say.

The Eternal Battle of Oil Bulls And Bears

For most of us, Groundhog Day brings another overwhelming feeling — a foreboding sense of déjà vu; whether or not you subscribe to groundhog-based weather forecasts, we’re getting a healthy dose of it this month.

My long-time readers know full well that there have been two forces battling each other in the media for years over a different forecast.

They’ve become the eternal bulls and bears inside the global oil markets, and each one has their agenda to sell you.

Look, we’ve talked about these two prevailing forces a lot over the last year.

In one corner, we have the ever-bearish International Energy Agency (IEA). Consistent in its pessimism over global demand and far too hopeful on the supply-side of the equation, the IEA has cemented itself over the last few years as the Debbie Downer for oil stocks.

But that’s what we would expect from a group that is leading an overly aggressive push away from oil and gas and towards renewable energy, right?

After all, Fatih Birol, the head of the IEA, is the head cheerleader for the net zero transition by 2050.

And the IEA’s February Oil Market Report starts off touting the same bearish sentiment that it’s been saying (and later revising) for a long time:

“Global oil demand growth is losing momentum, with annual gains easing from 2.8 mb/d in 3Q23 to 1.8 mb/d in 4Q23. A sharp drop in China underpinned an 830 kb/d decline in global oil demand to 102.1 mb/d in the last quarter of 2023. The pace of expansion is set to decelerate further to 1.2 mb/d in 2024, compared with 2.3 mb/d last year.”

The problem is that the IEA has a bad habit of revising their bearish forecasts to the upside. Four months ago, they were calling for 2024’s global oil demand to only rise by 930,000 b/d, which was another upward revision to the 880,000 b/d it was predicting last October.

At some point, you have to wonder how many times you can backtrack and still be taken seriously. Oh, that’s right, because calling for higher oil demand means their green transition would slow… my mistake.

Then there's the other corner of the ring: OPEC.

As expected, OPEC is the yin to the IEA’s yang — the perma-bull in the global oil markets.

Now, you know just as well as I do that we should be taking OPEC’s word with a grain of salt. Their agenda is just as transparent as the IEA since higher crude prices dump an immense amount of wealth into OPEC members’ coffers.

But let’s give a little credit where credit is due…

Throughout the last year, OPEC has at least stuck to its forecasts. In fact, the oil cartel still maintains that global oil demand will grow at a pace of 2.2 mb/d in 2024. We haven’t seen them back down from those projections yet, and the consequences of OPEC being right cannot be overstated.

If true, that means the world will average an all-time record of 104.4 mb/d this year, exiting 2024 at a consumption rate of 105.47 mb/d and then growing to 106.2 million barrels per day in 2025:

Despite being diametrically opposed on nearly everything relating to oil, these two bitter enemies ACTUALLY have something in common.

Both agree that global oil supply growth this year is going to come primarily from three non-OPEC regions: North America, Guyana, and Canada.

And the only question that should be in your head right now, as winter is fastly approaching an end, is “Who am I buying?”

Until next time,

Keith Kohl

MY TAKE: I have been getting IEA's monthly "Oil Market Report" for over 20 years. Their track record of under-estimating global oil demand growth is incredible. They have only over-estimated global demand twice, in 2008 due to the financial market crash and 2020 thanks to the Pandemic. IEA has a clear bias to reporting that renewable energy like biofuels, wind and solar will replace oil demand. My bet is that OPEC's forecast is much closer to where demand growth is going to end up in 2024 and 2025. Plus, I think IEA is also over-estimating oil supply growth because I think U.S. oil production growth is slowing and may peak later this year.