The Global Oil Market is under-supplied - June 30

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

The Global Oil Market is under-supplied - June 30

Post by dan_s »

As I have posted here and discussed in my weekly podcasts many times, the International Energy Agency (IEA) as a long history of over-stating oil supply growth and under-stating oil demand growth. Read this quote carefully.

"Non-OPEC+ production outside of the US was supposed to have been a bright spot in 2022 (something we never agreed with) but is now severely disappointing as well. In the first four months of the year, the IEA has revised 4Q21 and 1Q22 production estimates lower by a material 300,000 b/d. In a pattern that has repeated itself many times, the IEA revised down the actual data while revising higher the second half estimates, leaving the full-year figures unchanged. The IEA now expects non-OPEC+ production outside of the US to reverse course and grow by a staggering 1.2 million barrels per day over the next two quarters – something we believe to be impossible. To put this in proper context, production from this group is now down 500,000 b/d over the past six months versus original estimates calling for growth of 500,000 b/d." - Goehring & Rozencwajg Associates, LLC. 6-30-2022

OPEC+ is now out of spare production capacity. They raised their "official" production quotas for July and August, but the cartel has produced oil below the quotas for 8 straight months including June. Yesterday EIA guessed that U.S. oil production was 12.1 million bpd during the week ending 6/24/2022, which is just 300,000 bpd higher than the 11.8 million bpd they estimated for the week ending 12/31/2021. In my opinion, there is NO WAY that U.S. oil production will increase enough to match the IEA forecast.

This is why I value "running room" for our model portfolios. Our Sweet 16 companies all have a lot of low-risk / high-return development drilling inventory. Their leasehold is some of the most valuable real estate on Earth. The Sweet 16 also have strong balance sheets and lots of free cash flow to fund growth, dividends and stock buybacks.
Dan Steffens
Energy Prospectus Group
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