Energy Prospectus

"Data from a separate JTC report seen by Reuters on Sunday showed the group produced in January 972,000 bpd less than the targets outlined by the deal, compared with 824,000 less in December."

OPEC+ not producing up to their official quotas, yet they will raise the target another 400,000 bpd next week.

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Sun, February 27, 2022, 3:22 AM

LONDON (Reuters) -OPEC+ revised down its forecast for the 2022 oil market surplus by about 200,000 barrels per day (bpd) to 1.1 million bpd, according to a base scenario in a technical committee report seen by Reuters on Sunday.

The data - part of a report the Joint Technical Committee (JTC) prepares for OPEC+ ministers - also shows stocks in the developed world standing at 62 million barrels below the 2015 to 2019 average by the end of the year.

In a previous forecast it had predicted the stocks would reach 20 million barrels above the same average by that point.

Ministers from the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a grouping known as OPEC+, meet on March 2 to decide whether to increase output by 400,000 bpd in April.

Sources from the group told Reuters their output deal is showing no cracks so far after Russia's invasion of Ukraine, and the group is likely to stick to a planned output rise despite crude topping $100 a barrel.

Data from a separate JTC report seen by Reuters on Sunday showed the group produced in January 972,000 bpd less than the targets outlined by the deal, compared with 824,000 less in December.

Higher prices seem to be here to stay for a while

Matt DiLallo (Bull case): The past several years have been tough for the oil and gas market. Crude oil prices crashed twice (in 2014 and 2020), unleashing a devastating wave of bankruptcies across the oil patch. With that pain still fresh in the minds of the industry, it's taking a more cautious approach now that oil prices are higher.

Instead of reinvesting the cash flows they produce at higher oil prices on drilling more wells, oil and gas companies are returning the bulk of that windfall to investors via share repurchases and dividends. This trend has a dual benefit for oil and gas stocks. First, it's giving investors a tangible return. Meanwhile, it will likely keep a lid on supplies, which should support higher oil prices.

In the midst of all this, the oil market faces high geopolitical risk, given Russia's recent moves against Ukraine. Because Russia is a major oil and gas producer, this could have big implications for the energy markets. For example, Germany has already halted approval of the Nord Stream 2 pipeline, which would move natural gas from Russia to Germany, following Russia's movements in Ukraine. If more countries take political actions against Russia's energy industry, it could put further pressure on global oil and gas supplies and push prices even higher.

Given these dynamics, it seems likely that oil and gas prices will remain elevated for quite some time. Even if U.S. producers accelerate their drilling programs (something their investors don't want to see), it will take months for that new production to come online. Meanwhile, the country lacks the pipeline and export infrastructure to move additional supplies to global markets. Because of that, oil and gas companies appear poised to generate a gusher of cash in the coming months, which should give their stocks the fuel to keep heading higher.


The longer-term outlook for oil isn't exactly enticing
Rekha Khandelwal (Bear case): Oil and gas stock prices get impacted by numerous factors, the top one being oil prices. Oil prices, in turn, tend to be volatile and unpredictable. Certain factors make oil and gas stocks unattractive right now.

To be clear, the demand for oil and gas isn't going away overnight, as some renewable energy enthusiasts argue. The U.S. Energy Information Administration projects that even though the percentage share of oil and gas in the global energy mix is expected to fall by 2050, their absolute consumption will continue to rise. Despite this positive outlook, oil and gas companies may not see the kind of strong growth that they witnessed in the past. Increasing the use of renewable energy sources will restrict oil's growth. That is likely the reason behind the lukewarm attitude of investors toward oil and gas stocks, despite strong oil prices.

With the West Texas Intermediate (WTI) crude oil price close to around $95 per barrel, there is only one direction it can go from here: down. < I hate to break it to Rekah, but oil prices have gone a lot higher and they can do it again.

Even if prices stay at current levels for a while (or rise temporarily) due to geopolitical uncertainties, they will most likely normalize either when the issues resolve or as other oil-producing nations ramp up production. In short, the rally in oil prices could be short-lived.

Should you buy oil and gas stocks now?
Years of underinvestment in exploration and production projects mean that oil production may not be quickly restored to meet rising demand. That may help sustain oil prices for a while. However, prices are eventually bound to fall from their current high levels. Nobody can say for sure when that will happen -- it could be anywhere between a few days to a couple of years. Oil and gas stocks, which follow oil prices at large, may tumble once oil prices correct.
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MY TAKE is that it is a false paradigm that renewables will replace oil demand. Yes, they may slow the demand growth slightly, but demand for oil-based products is now higher than supply increases and that will continues.

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