Displaying items by tag: OPEC

Tuesday, 27 February 2024 14:11

US Oil Output Growth to Slow in 2024

Last year, US oil production increased by 1.8 million barrels per day according to the Department of Energy. It’s a major reason why oil prices are under $80 per barrel despite an assortment of reasons for it to be higher including OPEC production cuts, the ongoing war between Russia and Ukraine, and the conflict between Israel and Palestine. 

 

However, forecasts are showing that US production is expected to grow by a much smaller amount in 2024 due to inflationary pressures, consolidation, and a slowdown in rig activity. With a higher cost of production, less projects are viable, especially with oil prices at current levels.

 

So far, most of the reduction in drilling is expected to come from smaller, private producers, while larger, public producers are expected to continue with plans to increase production by an estimated 270,000 barrels per day. Yet, this is also less than last year’s increase of 900,000 barrels per day. However, forecasts indicate more robust growth in 2025 with new projects coming online. 

 

At the moment, US producers have the capacity to increase production in the event that prices rise more than expected and also cut if prices fall further. At the moment, the market seems to be near equilibrium as demand growth is expected to be slow in 2024 due to weakness in Europe and Asia. 


Finsum: Strong US production is one of the major reasons that oil prices are under $80 per barrel. However, production growth is expected to slow in 2024 before picking up once again in 2025. 

 

Published in Eq: Energy
Sunday, 18 February 2024 05:05

Differing Views on Oil Demand

Ever since the end of the pandemic, oil demand has seen strong growth and reached new highs. Last year, oil demand increased by 2.3 million barrels per day. According to Bank of America, demand should increase by 600,000 barrels per day on an average annual basis over the next decade. 

Increased demand from emerging markets in Asia and Europe is enough to offset lower demand in developed economies. Over the longer-term, increased use of electric vehicles, more investments in energy efficiency, and greater share of energy production from renewables will impact oil demand. However, there’s still a vigorous debate about the extent and timing.

The International Energy Agency (IEA) sees demand for fossil fuel peaking before the end of the decade. OPEC has strongly disagreed with this prediction and believes that it can be dangerous if it discourages investments in new production especially since oil demand has been so robust following the pandemic despite many skeptics. 

OPEC Secretary General Haitham Al Ghais remarked that “Given these growth trends, it is a challenge to see peak oil demand by the end of the decade, a mere six years away.” He also added that there have been numerous predictions about oil demand peaking in the past which turned out to be incorrect.


Finsum: Oil demand continues to rebound and hit new highs in 2023 at 102.9 million barrels per day. It’s forecast to keep growing over the next few years, although there is a vigorous debate about when it will peak.

Published in Eq: Energy
Thursday, 11 January 2024 16:41

Energy Weakness Continues Into 2024

2024 has started off with a bearish tone for the energy sector amid concerns of a supply glut and weakening demand. On Monday, crude oil prices dropped 4% as Saudi Arabia reduced prices for Asian customers by $2 per barrel. 

 

This is leading to speculation that Saudi Arabia could be looking to regain market share by punishing US producers and undercut cheaper Iranian and Russian oil. It could lead to a similar situation as 2020 when oil prices collapsed as Saudi Arabia flooded the market to punish other producers. Currently, the US is producing 13.2 million barrels per day of oil and has been restocking inventories and increasing exports. Others see it more as the consequence of a weak demand environment and a reflection of a decelerating economy. 

 

Energy prices had been higher to start the year amid an increase in geopolitical tensions. These include Houthi rebels attacking commercial vessels in the Red Sea and the escalations in the war between Israel and Hamas which could turn it into a larger, regional war. However, these concerns are being dwarfed by the supply and demand picture as evidenced by West Texas crude oil at $70 per barrel. 


Finsum: Oil prices dropped as Saudi Arabia announced that it would be reducing prices for Asian customers. Some believe that the country could be acting to protect market share. 

 

Published in Eq: Energy
Friday, 29 December 2023 03:02

Expect Volatility to Continue for Oil in 2024

This year has seen some big swings in crude oil prices given a variety of developments. These include rising US oil production, OPEC production cuts, the ongoing war in Ukraine, rising tensions in the MIddle East following Hamas’ attack, and a slowing global economy. As a result, crude oil prices ended the year down 10%. 

 

Entering 2024, these will continue to be major themes that need to be monitored. At its last meeting, OPEC reduced its production by 2.2 million barrels per day and said that more cuts may be necessary to support the price. But, there is increasing skepticism whether countries will actually abide given that many are reliant on oil revenue. 

 

Another challenge for OPEC is that US oil production continues to rise. Next year, it’s forecast to be 13.3 million barrels per day, an increase from this year’s average of 13 million barrels per day. Companies like Exxon Mobil and Chevron recently made major acquisitions of domestic producers and are also increasing capital expenditures. Unlike smaller producers, these majors are able to take advantage of economies of scale to push their costs lower and remain profitable with lower prices. 

 

OPEC now only has control of 51% of the crude oil market which is the lowest in decades. This raises the possibility that Saudi Arabia could choose to increase the supply to temporarily crash the price of oil in order to punish these producers and take back market share, although most analysts believe this is unlikely. 

 

On the other side, demand is projected to grow at the smallest rate in a year - 1.3 million barrels per day. In 2023, oil demand increased by 1.8 million barrels per day.  In part, this is due to a slowing global economy especially in China. 


Finsum: Oil has been quite weak to end the year despite several bullish catalysts. In hindsight, the most important development has been rising US oil production which is expected to hit a new record next year. 

 

Published in Eq: Energy
Friday, 22 December 2023 17:16

Energy Sector Has Upside in 2024: Fidelity

Energy stocks underperformed in 2023 due to supply being stronger than expected, while demand was muted due to softer economic growth in Asia and Europe. For next year, Maurice FitzMaurice, Fidelity’s energy sector portfolio manager, is bullish on the sector as he sees oil prices remaining high. Additionally, he expects increased investments in international and offshore production. 

 

While many are focused on the recent decline in oil prices, FitzMaurice believes that fundamentals support higher prices, and he points to low levels of CAPEX over the past decade as a major factor. Even though investment in production has recently increased, it will take years for it to come online and meaningfully impact supply. He predicts that US shale production will see slower growth due to higher costs and less productive wells, and OPEC will remain vigilant to support prices. 

 

In terms of subsectors, he favors energy equipment and services companies. He believes that more investment is required to meet the world’s need for oil, and higher levels of CAPEX should persist for multiple years especially given nearly a decade of underinvestment. Additionally, there is limited capacity in these subsectors which should result in significant pricing power and higher margins. In terms of which companies to target, he advises seeking out companies trading at discounted valuations, a healthy balance sheet, and a disciplined approach to capital allocation that has some sort of competitive advantage. 


Finsum: Fidelity’s energy sector portfolio manager shared his outlook for the sector next year. He is most bullish on energy services and equipment stocks due to the start of a multiyear investment cycle. 

 

Published in Eq: Energy
Page 1 of 14

Contact Us

Newsletter

Subscribe

Subscribe to our daily newsletter

Top
We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…