The Energy Report: Peak so Far

The peak that seemed so close is somewhat further away. Whatever happened to those predictions of peak demand? You know.

How the world was changing and because of changing habits global oil demand would peak. Why bother making long-term investments in it? Well based on today’s report from the International Energy Agency (IEA) that peak that they said was close looks so much further away.

The report that not only is global oil demand hit a record 103 million bpd in June, but something also that never thought would happen a few years ago, especially if you told them that China’s economy was supposedly struggling. What is more, the IEA is predicting another record-breaker in August! The IEA says the record demand oil demand has been boosted by air travel, power use, and China petrochemical probably because the Chinese economy is SOOO bad.

The IEA and OPEC do agree that the world is heading towards the biggest global oil supply deficit in a generation.  The IEA says that If OPEC + current targets are maintained, oil inventories could draw by 2.2 mbpd in 3Q and 1.2 mbpd in 4Q, with a risk of driving prices still higher.

OPEC yesterday said that supply will be at 101.1 million barrels a day, which is well below the current demand of 103 million barrels a day. Quantum Intelligence writes that:

“OPEC forecast Q3 global oil demand at 101.96 million bpd in its monthly oil report, up 100,000 bpd from its July estimate, against non-OPEC supply of 72.39 million bpd.”

That leaves a balance of 29.57 million bpd versus OPEC output pegged at 27.3 million bpd after coordinated cuts from Saudi Arabia and Russia from July through to September – leaving a supply deficit of 2.3 million bpd.  The world’s two largest crude exporters have succeeded in driving crude prices sharply higher since the cuts were announced in June, with futures up more than 20% over the period to nine-month highs over $88/b in Thursday trade.

If those cuts were extended into the rest of the year, the deficit could stretch to 3 million bpd on the back of firmer oil demand – which peaks globally at 103.2 million bpd by the fourth quarter. OPEC maintained its bullish outlook for oil demand in 2024, with global oil demand 2.25 million bpd higher than this year at a record 104.25 million bpd.

“Prospects for healthy oil fundamentals in the second half of the year, along with the pre-emptive, proactive and precautious approach of OPEC and non-OPEC producing countries to assess market conditions and take necessary measures at any time and as needed, will ensure stability of the global oil market,” OPEC said in its report according to Quantum Intelligence.

This comes after the Energy Information Administration (EIA0 predicts that US production will increase by y 850,000 barrels per day to record 12.76 million bpd in 2023 yet some are not so sure.

While the best-known rig-count report for giving investors a snapshot of US oil-and-gas drilling activity comes from oilfield services company Baker Hughes, it’s not the only one. Analytics firm Enverus also counts rigs, and its numbers show a 10-rig decline this week.

“The count is down 2%, or 15 rigs, in the last month and down 17% YOY,” Enverus says.

This follows last week’s Baker Hughes’ report that showed both its oil rig count and overall rig count fell to 17-month lows. Despite the lower rig counts, which sometimes mean lower US production rates on the horizon, the EIA said this week it sees US oil output rising more than expected due to a recent jump in crude prices and stronger well-level productivity.  Can we continue to squeeze more blood from that turn up?

We did see a big break in distilled prices yesterday but people that I am talking to in the industry continue to be concerned about an acute shortage of supply globally. Despite manufacturing data globally that had disappointed the demand for diesel somehow continues to be strong and supplies continue to be tight. Gasoline demand has been resilient despite the fact that prices are hovering near the highs for the year.

But obviously, if we head into a crude supply deficit in the second half of the year which is something we’ve been expecting the possibility of price spikes on products is very high. Any weather problems could it exasperate the move. We continue to recommend to be hedged be prepared.

Reports that the lamia cycle is going to be stronger than normal and that of course could mean a more active hurricane season and that’s what a lot of people are talking about. As far as yesterday we did get a bit of a break after the breakout. Partly because we got a bearish report for the week.

The EIA  said working gas in storage was 3,030 Bcf as of Friday, August 4, 2023, according to EIA estimates. This represents a net increase of 29 Bcf from the previous week. Stocks were 535 Bcf higher than last year at this time and 305 Bcf above the five-year average of 2,725 Bcf. At 3,030 Bcf, total working gas is within the five-year historical range.