Energy Prospectus

From HFI Research:
"Watch what they (OPEC+) do, not what they say. Don't be like the market and react to knee-jerk reactions on headlines. Algos don't know any better, and momentum funds definitely don't know any better.

My thesis is that the OPEC+ production cut was never a cohesive one. It was a Saudi cut from the beginning to the end. As a result, the only variable that will influence oil market balances is Saudi crude exports. Outside of that, everything else is noise.

So until that variable changes, the truncated production increase is just a sentiment cap on the energy sector. Nothing more, nothing less."

What are the four objectives of OPEC+?

1. Please Trump.
2. Negatively impact sentiment (turn others away from investing capital).
3. No material physical oil inventory builds.
4. Cohesiveness in OPEC+ returns as cheaters start to comply (via higher production ceiling).

I suspect that if I am correct in my analysis of OPEC+, we will receive the following confirmation signals by the end of September.

1. All of the voluntary production cuts will be gone by the end of September (truncated production increase for July, August, and September will bring ~2.2 million b/d back).

2. No material changes in crude exports from OPEC+ by the end of summer. Keep in mind that domestic power burn demand will keep crude at home (even for the Saudis).

Oil inventories will draw during the driving season.

There will be a lot of head scratching going around Wall Street trying to figure out why global oil inventories are not building at the same pace as COVID. With +2.2 million b/d OECD Petroleum Inventories stay on decline, Q4 oil inventory balances must increase by +3 million b/d!

Well, there's an important difference between paper barrels (Excel spreadsheets) and real barrels (exports). I guess the MBAs of Wall Street will have to learn it the hard way.

What will prove my thesis wrong?

Simple.

1. OPEC+ crude exports skyrocket. This will be fueled by both the Saudis and others. Thankfully, no sign of that in May.
2. Oil inventories will build meaningfully in the next few months. Paper barrels become real barrels.

So, my job is simple here. I watch these two variables like a hawk, and if they change, I will change my mind. Until that day comes, I'm sticking to my thesis < that oil inventories will keep falling, the global oil market will get tight and oil prices will increase back to the "Right Price", which is over $70/bbl by year end.

Note from Keith Kohl on 6-3-2025 with my comments in blue.

I’m going to tell you something that has never been uttered from my lips before: "OPEC was right to raise production."

The veteran members of our Energy and Capital investment community know that is something I don’t say lightly. After all, for as much as we know the IEA numbers are slanted bearish, the opposite could be said of OPEC’s nearly perma-bullish stance over the decades.

For as long as we can remember, there’s always been two factions at war with one another inside OPEC — the doves and hawks of the world’s biggest oil cartel; each taking their own side when it comes to the group’s output and pricing.

On one side, we have the price hawks that crave higher crude prices and lower supply. Typically, these are the OPEC members with limited upside production potential, so it makes sense they’d want to get the most bang for their buck when they export oil; countries like Iran, Iraq, and Venezuela.

On the other side of the fence are your heavy producers like Saudi Arabia and Kuwait, who take a dovish stance on prices, mostly because their higher output and low costs allow them to maintain market share and keep a long-term stranglehold on the value of their huge reserves.

After OPEC and its allies (mostly Russia) decided to add more than 400,000 barrels per day to their June output, the market started to price in a second output increase in July.

And you know what?

They were right to do so… but it’s WHY that’ll shock you.

After OPEC+’s June output hike, the real question on the market’s mind was whether they’d follow it up with a back-to-back increase in July. The speculation was enough to drive investors crazy — surely it would be enough to put even more pressure on oil prices and send them back into the $50/bbl range.

And yet crude prices jumped as much as 4% after the news was announced recently.

So what do they know that you don’t?

To answer that, you’ll have to understand why raising output was the correct move.

Look, we’ve been skeptical over OPEC decisions for decades at this point — especially given the group’s history of cheating on quotas and shady reserve increases — and there are a few things the market hasn’t quite realized yet.

The first and perhaps most obvious is that global demand is stronger than most believe. The IEA’s most recent oil confession is proof that the perma-bears have been in the wrong and have been cooking the numbers for years to artificially keep crude prices low. < IEA's attempt to sell the "Peak Oil" theory was the most evidence that the IEA is controlled by the Climate Change Wackos.

Well, it turns out that everyone is changing their tune. Countries that participate in the Joint Organizations Data Initiative (JODI) reported demand growth of 793,000 barrels per day this past March compared with February’s demand; for the record, that’s 2.19 million barrels per day higher year over year! < This is why U.S. and OECD Petroleum inventories are lower than normal for this time of year and I expect them to keep falling.

This story is more than everyone is underestimating global demand growth, too, due to the fact that global inventories are also well below the 5-year average.

Higher demand, lower supply… Dear reader, you’re witnessing firsthand one axiomatic truth in the oil market: The cure for low oil prices IS low oil prices.

For all its gruff, OPEC’s solitary mission should be to keep oil markets balanced. That’s precisely why they’re adding more barrels to the market, because the supply/demand fundamentals during the second half of 2025 are getting much tighter. < As I have been telling EPG members for months.

This is why crude prices are rising on news that OPEC is hiking output.

However, OPEC+ knows something else that is overlooked by many investors, too — U.S. oil production is going to start heading lower soon.

I’ve told you before that we can safely dismiss the weekly U.S. production numbers from the EIA, which are simply based on their Short-Term Energy Outlook forecasts. In other words, they don’t really give us an accurate picture of our domestic output. < EIA has for many years used history to predict the future. They are always behind the curve when U.S. production peaks and then goes on decline. All they have to do is look at the falling active drilling rig count and the declining number of completion crews working to see that U.S. production will soon go on decline. It probably already has.

For that, it’s better that we turn to their Monthly Petroleum Report, the numbers for which are usually delayed by a few months. The EIA’s most recent one showed that U.S. crude oil production hit an all-time high of 13.48 million barrels per day in March.

Soon, those reports are going to start showing our output heading in the other direction; the low oil price environment will ensure that much. How low our output drops, however, is the real question. I’ve seen some estimates calling for U.S. oil production to fall as low as 12.5 million barrels per day.

What’s interesting is that only one oil region has experienced any real growth at all for the last five years!

If you take a look at the difference between tight oil production inside and out of the Permian Basin since our oil boom kicked off more than 15 years ago, you will see that outside of the Permian, oil production growth has been essentially flat. It is actually lower today than it was in 2019. Keep in mind that this took place despite oil prices climbing well above $100 per barrel in 2022, too!

The game has changed in the U.S. oil patch, that much we’re sure of. < The best upstream oil & gas companies are playing the "Long Game". They will be using the best practices to get the most oil & gas out of their leasehold at the lowest cost to create the most value for their shareholders, exactly what Saudi Arabia is doing now.