Displaying items by tag: energy

Friday, 29 March 2024 03:47

What Analysts Got Wrong About Oil

Oil prices have continued to defy Wall Street analysts. Last year, the consensus view was that prices would weaken as the US economy slipped into a recession, with the rest of the world facing a sharper contraction in economic growth. While growth did slow, the US economy continued to expand, and global oil demand increased more than expected. In Q1, the IEA upped its forecast for US oil demand by 110,000 barrels per day due to stronger than expected economic data. 

Additionally, despite predictions from EV boosters, there has been no material impact on oil demand from increased adoption. Similarly, China’s economy has been mired in a slump, yet Chinese oil demand also defied expectations and increased more than expected. In fact, a major lesson of the post-pandemic period is the inelasticity of oil demand. 

On the supply side, US production also surpassed forecasts and made up for any production cuts from OPEC. A major factor is increasing well productivity due to newer drilling techniques. 

Looking ahead, many were skeptical that OPEC+ would remain disciplined, given individual countries’ incentives to increase revenues by boosting production. So far, the cartel has managed to successfully reduce production, which is contributing to the current tight market and a major factor in oil’s upward move YTD. 


Finsum: Last year, many analysts got it wrong when it came to oil. Overall, they were too bearish on the economy and overestimated how much a weak economy would impact oil demand. 

Published in Eq: Energy
Friday, 15 March 2024 04:08

Gasoline Prices Expected to Rise

Lower energy prices have provided some relief for consumers over the last few months. However, this could be changing with demand set to increase as we enter the start of driving season which is due to be exacerbated by refinery outages in many parts of the country.

 

Over the last month, gasoline prices are about 5% higher but still slightly down relative to last year at this point. Higher energy prices negatively impact consumer confidence and discretionary spending but also feed into inflationary pressures. In last month’s CPI report, higher energy prices was a major factor in the hotter than expected readings. Additionally, they have political implications given elections in November.

 

According to analysts, the situation is likely to get worse before its gets better. Gasoline inventories are lower than normal, following a 5.7 million barrels decline last week, and are now 3% below their average levels for this time of the year. Inventories could continue to be drained as refineries have been running below 87% capacity for the last 8 weeks. Adding to these issues is recent drone strikes on Russian refineries by Ukraine.


Finsum: Gasoline prices have been rising due to refinery issues. The situation is likely to get worse before it gets better as we enter summer driving season, and inventories have been drawn down more than expected. 

Published in Eq: Energy
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
Wednesday, 21 February 2024 13:30

Biden’s Energy and Climate Agenda Takes A Blow

U.S. House of Representatives push back on one of President Biden’s most recent energy initiatives, pausing approvals for liquified-natural-gas exports. The GOPs bill passed on a measure of 224 to 200 in the House and a similar bill making its way to the Senate. 

Biden’s pause on LNG-exports sent shockwaves through the energy markets last month as prices plummeted to the lowest point in nearly four years. 

The halt of LNG exports was praised by climate activists and was seen as a pivotal step by the current administration in dealing with one of the more pressing issues of our times, but conservatives fear this initiative puts a restriction the U.S. ability to generate jobs in this area. Moreover, countries like Russia could step in to fill the void in production. It was only a year ago Biden was pleading with European countries to decrease their reliance on Russian natural gas production. 

The final piece of this puzzle is the legislation would limit the ability of the Department of Energy to regulate and control LNG, and Democrats have made the plea that if this bill was enacted it would increase prices for consumers.


Finsum: Declining natural gas prices could also be affected by this year’s historically warmer temperatures mitigating the need for typical winter consumption. 

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
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