Notes from AEGIS
"Saudi Arabia's recent announcement of a unilateral production cut of 1 million bpd for July, in addition to OPEC+'s extended cuts through December 2024, may worsen the oil market supply-demand imbalance in the second half of 2023."
"Expectations were already that the oil market would see an imbalance (deficit) in the second half of 2023 mainly due to China’s demand growth; now, the supply-demand imbalance is expected to worsen. IEA and OPEC’s forecast for 2023 indicate at least a 300 million Bbl decline in global petroleum inventories as the “cuts” could prompt outsized withdrawals."
"Prices have been moving sideways since OPEC’s October 2022 cut, mostly on the back of near-term bearish movers. However, AEGIS sees the recent cut as OPEC+'s and Saudi Arabia's dedication to uphold certain price levels, and even though the market hasn't rallied to the early-2023 expected price range of $80-$100/Bbl, it doesn't imply it won't in the future. The substantial supply deficit could set the stage for a bullish market in 2H2023, even if demand picks up modestly."
Global Oil Market supply deficit just ahead - June 26
Global Oil Market supply deficit just ahead - June 26
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Global Oil Market supply deficit just ahead - June 26
Other news that should be bullish for oil:
Statistical review finds fossil fuels still dominate the global energy mix. Forbes.
Oil, natural gas and coal continued to dominate global primary energy consumption in 2022 despite focused efforts by western governments to subsidize a largely debt-funded transition to renewables and electric vehicles (EVs). The Statistical Review of World Energy, conducted by the Energy Institute, finds that fossil fuels provided 82% of primary energy consumption during 2022, the same percentage it provided in 2021, as surging energy demand offset growth in renewables and EVs. A Persistent Dominance By Fossil Fuels Fossil fuels’ percentage of global primary energy has remained stubbornly within a few percentage points of this level throughout the 21st century despite trillions of dollars having been poured into research, development and the build-out of a steadily-expanding “green” energy sector.
US shale oil and gas producers pull back after commodity price drop. Financial Times.
The prolific US shale oil and gas industry is decelerating in the face of weakening commodity prices, suggesting production growth will stall at a time of booming demand. Evidence of stagnating activity is mounting. A survey by the Federal Reserve Bank of Dallas posted a score of zero for business activity growth in the second quarter among some 150 oil and gas groups in its region — suggesting any expansion had hit a wall. It was the lowest score since 2020, when an oil price crash during the coronavirus pandemic forced operators to slash headcounts and idle drilling rigs. < Last week EIA reported a 200,000 bpd decline in U.S. oil production to 12,200,000 bpd. EIA's weekly estimates are Wild Ass Guesses, but the falling active drilling rig count tells me that IEA's forecast that U.S. oil production will soon bounce back to pre-pandemic levels of close to 13 million bpd is just "Wishful Thinking".
Saudis are tightening the screws on US oil shipments. Bloomberg. Opinion.
When Saudi Arabia needs to quickly convince the oil market that supply is tightening, putting upward pressure on prices, nothing beats reducing its crude exports into the US. Riyadh has promised to slash oil production next month by 10%, a unilateral cut that would reduce output to just 9 million barrels a day, the lowest since 2011 — save for brief disruptions from Covid and the Yemeni attack on its facilities. Crucially, as important as the cut itself, is where it’s going to be felt: The signals point to the US and Europe. Focusing on the US would telegraph the reduction clearly to traders. Fluctuations in American crude imports, and ultimately, oil stockpiles have an outsize impact because Washington publishes the data weekly. In other regions, traders only get official figures on a monthly basis, or sometimes not at all, as in China and India. < If Saudi Arabia makes the production cuts they recently announced, OECD Petroleum inventories will decline and the rate of decline will increase in Q3. OECD Petroleum inventories are already below 28 Days of Consumption and could go under 25 Days of Consumption within six months. The inverse relationship between Days of Consumption and the price of oil points to $110/Bbl WTI by year end 2023.
Statistical review finds fossil fuels still dominate the global energy mix. Forbes.
Oil, natural gas and coal continued to dominate global primary energy consumption in 2022 despite focused efforts by western governments to subsidize a largely debt-funded transition to renewables and electric vehicles (EVs). The Statistical Review of World Energy, conducted by the Energy Institute, finds that fossil fuels provided 82% of primary energy consumption during 2022, the same percentage it provided in 2021, as surging energy demand offset growth in renewables and EVs. A Persistent Dominance By Fossil Fuels Fossil fuels’ percentage of global primary energy has remained stubbornly within a few percentage points of this level throughout the 21st century despite trillions of dollars having been poured into research, development and the build-out of a steadily-expanding “green” energy sector.
US shale oil and gas producers pull back after commodity price drop. Financial Times.
The prolific US shale oil and gas industry is decelerating in the face of weakening commodity prices, suggesting production growth will stall at a time of booming demand. Evidence of stagnating activity is mounting. A survey by the Federal Reserve Bank of Dallas posted a score of zero for business activity growth in the second quarter among some 150 oil and gas groups in its region — suggesting any expansion had hit a wall. It was the lowest score since 2020, when an oil price crash during the coronavirus pandemic forced operators to slash headcounts and idle drilling rigs. < Last week EIA reported a 200,000 bpd decline in U.S. oil production to 12,200,000 bpd. EIA's weekly estimates are Wild Ass Guesses, but the falling active drilling rig count tells me that IEA's forecast that U.S. oil production will soon bounce back to pre-pandemic levels of close to 13 million bpd is just "Wishful Thinking".
Saudis are tightening the screws on US oil shipments. Bloomberg. Opinion.
When Saudi Arabia needs to quickly convince the oil market that supply is tightening, putting upward pressure on prices, nothing beats reducing its crude exports into the US. Riyadh has promised to slash oil production next month by 10%, a unilateral cut that would reduce output to just 9 million barrels a day, the lowest since 2011 — save for brief disruptions from Covid and the Yemeni attack on its facilities. Crucially, as important as the cut itself, is where it’s going to be felt: The signals point to the US and Europe. Focusing on the US would telegraph the reduction clearly to traders. Fluctuations in American crude imports, and ultimately, oil stockpiles have an outsize impact because Washington publishes the data weekly. In other regions, traders only get official figures on a monthly basis, or sometimes not at all, as in China and India. < If Saudi Arabia makes the production cuts they recently announced, OECD Petroleum inventories will decline and the rate of decline will increase in Q3. OECD Petroleum inventories are already below 28 Days of Consumption and could go under 25 Days of Consumption within six months. The inverse relationship between Days of Consumption and the price of oil points to $110/Bbl WTI by year end 2023.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group