Analys

Why Brent 1mth at $65/b is reachable before Christmas

Publicerat

6 år sedan

den

23 oktober, 2017

Redaktionen

Crude oil price action – Brent crude 1mth Inching 1% higher WoW amid dollar headwinds. Brent to WTI crude spreads continues to widen

Brent crude inched 1% higher over the past week with a close of $57.75/b while the longer dated Dec-2020 gained 0.4% to $54.75/b.
The energy complex in total gained 0.6% while the other commodity sub-indexes all experienced losses from a marginal 0.03% loss for metals to a more substantial 1.7% and 1.8% for Agri and precious respectively.
Overall commodities lost 0.4% over the week and thus slightly less than dollar headwind from a 0.7% stronger USD index.
Compared to the 0.4% gain in the Brent Dec-2020 the WTI Dec-2020 instead fell back 0.3% to $50.08/b.
The spread between longer dated Brent and WTI prices thus continued to expand last week rising to $4.67/b for the Dec-2020 horizon.
The further expansion in Brent – WTI crude spreads was even more pronounced on the Dec-2018 horizon where it expanded 0.7% to $4.35/b., the highest since November 2015.

Brent crude oil comment – Why Brent 1mth at $65/b is reachable before Christmas

Declining US shale oil rig count is likely going to allow the mid-term WTI crude curve to move from current $51/b up towards the high of the year of around $56-57/b
Increasing US crude production is placing increasing strains on US crude oil export bottlenecks leading to further widening in the Brent to WTI crude spreads.
As a result mid-term forward Brent crude prices have the potential to move to $61-62/b when mid-term WTI moves to $56-57/b.
Further global inventory draws are likely to add yet steeper backwardation to the Brent crude curve which would allow the Brent 1mth contract to rise towards $65/b ($3-4/b above the Brent mid-term crude forward prices).

However, the 2018 crude oil market balance could be challenging as US shale oil players are likely going to drill less and complete more.
At the moment there is a tug of war between short term bullish drivers, real and visible, versus bearish concerns for 2018.
Bullish short term drivers are likely to win in the short term while medium term bearish drivers are likely going to come back and bite the market in the … in 2018.

There has been lots of comments that it would be unwise for Brent crude 1mth to move above $60/b because that would stimulate US shale oil production too much.
The thing is that it is not the 1mth Brent crude contract which sends stimulating price signals to US shale oil producers all that much. Rather it is the medium term forward WTI curve contracts which do so.
Typically it is the 1-3 year forward WTI contract price level which is what US shale oil players can sell and hedge new and existing production at. These forward prices are setting the level of profitability for new shale oil wells and production.

The Brent 1mth contract reached its highest price level since March 2015 in late September ($59.49/b) and is trading just $1.6/b shy of that level today at $57.88/b.
Conversely the medium term WTI forward prices have set no such new ytd highs. If we look at the rolling WTI 18 mths contract (1.5 years forward) it reached a high of the year in early January of $57.39/b.
That was real shale oil stimulus resulting in lots of additional shale oil rigs and drilling. On Friday however it closed at no more than $51.02/b with the highest price this side of the summer being $51.7/b

In late September we commented that “Brent was set free to rally on increasing backwardation and widening spread to WTI”. The argument was that we can get a higher Brent 1mth price without stimulating US shale oil production because of an increasing Brent backwardation and an increasing Brent to WTI crude spread both in the front and on the curve.

At the moment we see that US shale oil players are kicking out shale oil drilling rigs. Just last week they kicked out 7 shale oil rigs. Since early August they have kicked out 30 oil rigs and 24 implied shale oil rigs.
Assuming a 6 week lag between price action and rig count reaction this shedding of US oil rigs is taking place at a forward WTI18 mth crude price of $50-51/b (6 weeks ago).

The US shale oil players are thus sentiment wise telling the market that WTI at a medium term forward price level of $50/b is not enough for them to keep the current rig count running.
They are kicking out rigs at $50/b. Thus while empirical market experience from May 2016 to July 2017 was that the US shale oil rig count inflection point was around $47/b (18mth forward) it has now clearly shifted higher than $50-51/b.

We believe that the market dynamic with respect to US shale oil is much about trial and error. Having figured out that it is now no longer at $47/b and that it is now also higher than $50-51/b it now remains to figure out where it has moved too. Thus the next test should now be to figure out where the US shale oil rig count change versus WTI 18mth forward price level relationship inflection point has moved to. I.e. the market should allow the forward WTI18mth contract to move upwards. Acceptable moves upwards in perspective of what we have seen earlier this year would be that the WTI 18 mth contract moves to $55-56/b.

One reason why such a move higher for the WTI 18 mth price horizon is reasonable to expect is because even though the WTI crude curve is in contango at the very front end of the curve there is still an overall backwardation in the forward WTI curve structure. The consequence of this is that shale oil producers now have to sell at a discount to front end prices if they want to sell forward hedging their future production. This typically leads to reluctance and reduced forward selling by producers. Consumers however experience the opposite. Consumers can now buy forward at a discount to front end prices which typically leads to more forward buying. Thus less forward selling and more forward buying should typically help to lift the mid-term forward crude prices higher both for Brent and WTI.

Thus if we assume that the mid-term WTI forward crude prices has potential to move $5/b higher it would allow the Brent mid-term crude price to shift $5/b higher as well which would allow the Brent 1mth contract to shift $5/b higher as well. If we in addition assume that the Brent to WTI crude price spread on the curve expands a further $1/b then the Brent crude curve can shift yet another dollar higher. Add another dollar in further steepening Brent backwardation and the front end Brent has another dollar on the upside. Thus a total $2/b extra on widening Brent – WTI spread and further Brent backwardation steepening.

Thus in total the Brent 1mth contract has an upside potential of another $7/b. The move would place the 18 mth WTI price at $56/b versus ytd high in early January of $57.39/b and current $51/b. It would place the Brent 18 mth contract at $61/b and a new ytd high and highest since April 2015 and it would place the Brent 1mth contract just shy of $65/b. And still US shale producers would not be stimulated with a higher forward price than WTI 18mth at $56/b. Maybe that is where the US shale oil rig count to WTI18mth inflection point has shifted to? At the moment it is at least higher than $51/b given data since early August.

The sentimental drivers for such a move higher is going to be further draw downs in inventories (yes, market is running a deficit due to OPEC+ production cuts), further reductions in US shale oil rig count (yes, we expect US shale players to kick out 5-10 rigs every week to Christmas to balance drilling versus completions), further accumulation of net long Brent spec into the backwardated Brent crude curve with positive roll yield, emergence of geopolitical risk premium in crude prices as stocks move lower, stronger and stronger signals from Saudi Arabia and Russia that they are willing to extend cuts to end of 2018 topped up with forecasts pointing to a cold US winter ahead (stronger La Nina event) with US Atlantic coast mid-distillate stocks now below 5yr average.

However, there is a reason for why Saudi Arabia and Russia both are signalling elevated willingness to extend current production cuts all to the end of 2018. They are concerned for the oil market balance in 2018. And with good reason. Since November 2016 when OPEC+ decided to cut production there has been a veritable shale oil drilling party with an accumulation of 1735 uncompleted wells and the accumulation continued also in September adding another 179 uncompleted wells lifting the total to 7270 uncompleted wells. In comparison the shale players completed 10161 wells over the 12mths to September and on average 847 wells per mth.

Thus if 2017 was a US shale oil drilling party then 2018 may be a shale oil completion party. US shale oil completions have been rising every month since January. In December 2016 completions stood at a low of 645 wells rising to 1029 in September and still rising. If completions average 1100 wells per month in 2018 then it would be 30% higher than the average of 847 in the 12 mths to September. In our view the US shale oil players today have too many active drilling rigs. They should spend their money on completions rather than drilling. That is what creates oil and cash flow. Thus the natural thing to expect is a further decline in the drilling rig count. Maybe another 100 to 200 rigs down and at the same time to expect a further increase in completions and eventually a draw down in the inventory of drilled but yet uncompleted wells.

At the moment the market is in a tug of war between short term bullish drivers which are very true, very visible and very strong versus real concerns for the oil market balance for 2018. We expect the short term bullish drivers will win in the short term while the medium term issues will hit back at the market in the medium term.

Ch1: US shale oil players are kicking out drilling rigs with WTI 18 mth contract at $51/b

Ch2: US shale oil rig count change to WTI mid-term forward price breaking up. Inflection point shifting higher. Rigs being kicked out at WTI $50-51/b

Ch3: Brent crude 1 to 18 mth time spread – Increasing backwardation as inventories falls
Stronger backwardation allows the 1mth contract to rise higher without stimulating US shale production on the forward WTI curve

Ch4: Rolling Brent 18mth price spread to the rolling WTI 18mth crude price
The spread is expanding as the US crude production is increasing
Higher spread will allow the Brent18 mth contract to move relatively higher versus the WTI curve without stimulating US shale oil production
More to come as US crude production continues to rise

Ch5: WTI 18mth forward crude oil price. Still lots of room on the upside before getting back to ytd high

Ch6: Crude oil forward curves. Brent in backwardation, more to come. Front end WTI in front end contango to flip into front end backwardation

Ch7: Brent 1mth to WTI 1mth contract price spread makes a jump to $6/b

Ch7: Resulting in a big jump in US crude oil exports
This will drain US crude inventories and flip front end WTI contango into backwardation

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

Relaterade ämnen:bjarne schieldrop seb analys

Nästa

SEB Råvarubrev 24 oktober 2017

Missa inte

Trender inom skogssektorn

Fortsätt läsa

Annons

Klicka för att kommentera

Skriv ett svar
Avbryt svar

Analys

SEB Metals price forecast update

Publicerat

18 timmar sedan

den

30 november, 2023

Redaktionen

Softer economic growth in 2024 calls for somewhat softer metals prices in 2024. Industrial metals prices as well as other commodity prices exploded during Covid-19 as governments around the world unleashed stimuli in the magnitude of 10x of what was done during the global financial crisis in 2008/09. Consumers shifting spending from services to consumer goods added to the boom. Bloomberg’s industrial metals price index was up 91% in March 2022 versus January 2020 because of this. Global manufacturing PMI peaked in May 2021 and has been fading since and below the 50-line from September 2022 with latest reading at 48.8. Industrial metals prices have faded since their peak in March 2022 but are still 30% higher than they were in January 2020. Even zinc, the worst performing metal, is still 9% above where it was in January 2020. As such one could possibly argue that industrial metals have not yet fully faded from their Covid-19 stimulus boom. One possible explanation could be inflation where US inflation is up 19% over the period. But this still leaves industrial metals up 11% in real terms. Another possible explanation is the big jump in energy prices over the period. While coal and gas prices have fallen back a lot, they are still quite high. The coal price in western Europe is 110% above where it was at the start 2020 and 50% above its 2010-2019 average. Most industrial metals are highly energy intensive to produce with digging and crushing of rocks, smelting, and refining of ore. The current aluminium price of USD 2215/ton is for example well aligned with coal prices. In addition to this there has also been significant closures of zinc and aluminium smelting capacity in Europe which probably have supported prices for these metals.

Global economic growth is forecasted to slow from 3.5% in 2022, to 3.0% in 2023 and then again to 2.9% in 2024 as the big jump in interest rates induce economic pain with a lag. Aligned with this we expect lower industrial metals prices in 2024 than in 2023 though only marginally lower for most of the metals. But the field of metals is wide, and the price action is thus adverse. Copper is likely the metal with the most strained supply and with huge needs in the global energy transition.

Aluminium: Prices will likely be depressed versus marginal costs in 2024. Aluminium from Russia is flowing unhindered to the market. Most is going to China for reprocessing and potentially re-exported while some is going to Turkey and Italy. It is all flowing into the global pool of aluminium and as such impacting the global market balance. The LME 3mth aluminium price is currently well aligned with coal prices and both have traded mostly sideways since June this year. Aluminium premiums in the EU have however fallen 30-40% since mid-June in a sign of weakness there. The global market will likely run a surplus in 2024 with depressed prices versus the marginal cost of production.

Copper: Softer fundamentals in 2024 but with accelerating tightness on the horizon. Copper is currently trading at USD 8470/ton and close to 37% above its early Jan 2020 level. The market is expected to run a slight surplus in 2024 followed by accelerating tightness the following years. Downside price risk for 2024 is thus warranted along with softer global growth. The power of Unions is however getting stronger in Latin America with demands for higher salaries. Strikes have broken out in Peru with production at the Las Bambas copper mine at only 20%. Further strikes and disruptions could quickly put the market into deficit also in 2024.

Nickel: Indonesia pursuing market share over price pushing the price down the cost curve. Indonesia’s nickel production is growing rapidly. Its production reached 1.6 million ton in 2022 (+54% YoY) and accounted for close to 50% of total global supply in 2022. Its share looks set to reach 70% by 2030. Lower prices will stimulate demand and will also force higher cost producers to shut down thus making room for the wave of new supply from Indonesia. Prices will be sluggis the nearest years as Indonesia aims for market share over price.

Zinc: Price has stabilized around USD 2500/t. Weakness in global construction will drive prices lower at times in 2024. The 3mth LME zinc price has fallen from a peak of USD 4499/ton in April 2022 to only USD 2248/ton in May 2023. Since then, it has recovered steadily to USD 2500/ton. Demand could struggle in 2024 as construction globally will likely struggle with high interest rates. But mine closures is a natural counter effect of low prices and will put a floor under prices.

Price outlook

Bjarne Schieldrop
Cheif Commodities Analyst
SEB Commodity Research

Fortsätt läsa

Analys

Now it’s up to OPEC+

Publicerat

2 veckor sedan

den

20 november, 2023

Redaktionen

All eyes are now back at OPEC+ after the recent fall in oil prices along with weakening crude curve structures and weakening economic statistics. OPEC+ will have to step up the game and give solid guidance of what it intends to do in 2024. If Saudi Arabia is to carry the burden alone (with only a little help from Russia) it will likely need to keep its production at around 9.0 m b/d on average for 2024 and drop it down towards 8.5 m b/d in Q1-24. This may be too much to ask from Saudi Arabia and it may demand some of the other OPEC members to step up and join in on the task to regulate the market in 2024. More specifically this means Iraq, Kuwait and UAE. The oil market will likely be quite nervous until a firm message from Saudi/Russia/OPEC+ is delivered to the market some time in December.

Bjarne Schieldrop, Chief analyst commodities at SEB — Bjarne Schieldrop, Chief analyst commodities, SEB

Saudi Arabia may get some help from President Joe Biden though as his energy secretary adviser, Amos Hochstein, has stated that the US will enforce sanctions on Iran on more than 1 m b/d.

Brent crude fell 4.6% ydy to USD 77.4/b and over the last three trading sessions it has lost USD 5.1/b. This morning it is trading only marginally higher at USD 77.6/b which is no vote of confidence. A good dose of rebound this morning would have been a signal that the sell-off yesterday possibly was exaggerated and solely driven by investors with long positions flocking to the exit. So there’s likely more downside to come.

In general there is a quite good relationship between net long speculative positions in Brent crude and WTI versus the global manufacturing cycle. Oil investors overall typically have an aversion of holding long positions in oil when the global economy is slowing down. As of yet there are few signs that the global economic cycle is about to turn. Rather the opposite seems to be the case. Global manufacturing fell in October and yesterday we saw US industrial production fall 0.6% MoM while continued jobless claims rose more than expected and to the highest level in two years. This matches well with the logic that the strong rise in interest rates since March 2022 is inflicting pain on the economy with more pain ahead as the effect comes with a lag.

Most estimates are that the global oil market is running a solid deficit in Q4-23. The IEA has an implied deficit in the global oil market of 1 m b/d in Q4-23 if we assume that OPEC will produce 28 m b/d vs. a call-on-OPEC at 29 m b/d. But prices in the oil market is telling a different story with weakening crude curves, weakening refining margins and a sharp sell-off in oil prices.

For 2024 the general forecasts are that global economic growth will slow, global oil demand growth will slow and also that the need for oil from OPEC will fall from 28.7 m b/d to 28.4 m b/d (IEA). This is a bearish environment for oil. The average Brent crude oil price so far this year is about USD 83/b. It should essentially be expected to deliver lower in 2024 with the negatives mentioned above.

Two things however will likely counter this and they are interconnected. US shale oil activity has been slowing with falling drilling rig count since early December 2022 and that has been happening at an average WTI price of USD 78/b. The result is that total US liquids production is set to grow by only 0.3 m b/d YoY in Q4-24. This allows OPEC+ to support the oil price at USD 80-90/b through 2024 without fear of loosing a significant market share to US oil production. Thus slowing US liquids production and active price management by OPEC+ goes hand in hand. As such we do expect OPEC+ to step up to the task.

So far it has predominantly been Saudi Arabia with a little help from Russia which together proactively have managed the oil market and the oil price through significant cuts. Saudi Arabia produced 10.5 m b/d in April but then cut production rapidly to only 9.0 m b/d which is what it still produces. Its normal production is about 10 m b/d.

What has made the situation more difficult for Saudi Arabia is the combination of solid growth in non-OPEC supply in 2023 (+2.1 m b/d YoY; IEA) but also a substantial revival in production by Venezuela and Iran. The two produced 660 k b/d more in October than they on average did in 2022. So the need for oil from Saudi Arabia is squeezed from both sides.

All eyes are now back at OPEC+ after the recent fall in oil prices along with weakening crude curve structures and weakening economic statistics.

OPEC+ will have to step up the game and give solid guidance of what it intends to do in 2024. If Saudi Arabia is to carry the burden alone (with only a little help from Russia) then it will likely need to keep its production at around 9.0 m b/d on average for 2024 and drop it down towards 8.5 m b/d in Q1-24. This may be too much to ask from Saudi Arabia and it may demand some of the other OPEC members to step up and join in on the task to regulate the market in 2024. More specifically this means Iraq, Kuwait and UAE.

The oil market will likely be quite nervous until a firm message from Saudi/Russia/OPEC+ is delivered to the market some time in December.

Saudi Arabia may get some help from President Joe Biden though as his energy secretary adviser, Amos Hochstein, has stated that the US will enforce sanctions on Iran on more than 1 m b/d.

Fortsätt läsa

Analys

More from Venezuela and Iran means smaller pie for Saudi

Publicerat

1 månad sedan

den

24 oktober, 2023

Redaktionen

Production in Venezuela and Iran is on the rise and is set to rise further in the coming months and in 2024. Combined their production could grow by 0.8 m b/d YoY to 2024 (average year to average year). The IEA projected in its latest OMR (Oct-2023) that call-on-OPEC will fall to 28.3 m b/d in 2024, a decline of 0.5 m b/d. This combination would drive implied call-on-Saudi from 10.4 m b/d in 2023 to only 9.1 m b/d in 2024 and as low as 8.6 m b/d in Q1-24 if Saudi Arabia has to do all the heavy lifting alone. Wider core OPEC cooperation may be required.

The IEA is out in the news today projecting peak oil demand this decade with global demand standing at no more than 102 m b/d towards the end of this decade. If so it would imply a call-on-Non-OPEC of only 66.4 m b/d in 2028 assuming that OPEC in general will demand a market share of 30 m b/d + NGL of 5.6 m b/d. The IEA (Oct-23) projects non-OPEC production to average 68.8 m b/d in 2024. That’s already 2.4 m b/d more than what would be sustainable over time if global oil demand is set to peak later this decade. Oil producers in general cannot have a production growth strategy in a peak oil demand world.

The US has decided to lift sanctions towards Venezuela for six months (18 April) as a measure to tempt it to move towards more democratic processes. And if it does, then the lifting of sanctions could continue after the 6 months. A primary opposition election took place this weekend with lawmaker Maria Corina Machado currently holding 93% of the vote count. Venezuela will next year hold a presidential election but fair play seems unlikely with Maduro in charge. The lifting of sanctions allows Venezuela’s PdV to resume exports to all destinations. Bans on new, foreign investments in the oil and gas sector are also lifted though Russian entities and JV’s are still barred.

Venezuela produced 0.8 m b/d in September and indicates that it can lift production by 0.2 m b/d by year and with more rigs and wells by 0.5 m b/d to 1.3 m b/d in the medium term.

Oil production in Iran has been on a steady rise since its low-point of 2.0 m b/d in 2020. Last year it produced 2.5 m b/d. In September it produced 3.1 m b/d, but Iran’s oil minister says production now is at 3.3 m b/d. Iran’s rising production and exports is not about the US being more lenient in its enforcement of sanctions towards Iran. It is more about Iran finding better ways to circumvent them but even more importantly that China is importing more and more oil from Iran.

Production by Iran and Venezuela is recovering. YoY production from the two could rise by close to 0.8 m b/d in 2024. This will lead to a decline in call-on-Saudi oil.

Oil production by Iran and Venezuela — Source: SEB graph and asessments, Blbrg data and news

The IEA estimated in its latest OMR report that call-on-OPEC will fall from 28.8 m b/d in 2023 to 28.3 m b/d in 2024. If all OPEC members except Saudi Arabia produces the same amount in 2024 as in 2023, then the need for Saudi Arabia’s oil (call-on-Saudi) will fall from a healthy 10.4 m b/d in 2023 to a still acceptable 9.9 m b/d in 2024. Its normal production is roughly 10 m b/d.

If however production by Iran and Venezuela rise by a combined 0.5 m b/d YoY in 2024, then call-on-Saudi will fall to 9.4 m b/d which is not so good but still manageable. But if Iran’s oil minister is correct when he says that its current production now is at 3.3 m b/d, then it is not far fetched to assume that Iran’s oil production may average maybe 3.4-3.5 m b/d in 2024. That would yield a YoY rise of 0.6 m b/d just for Iran. If we also assume that Venezuela manages to lift its production from 0.8 m b/d this year to 1.0 m b/d in 2024, then the combined growth from the two is closer to 0.8 m b/d. That would push call-on-Saudi down to only 9.1 m b/d which is not good at all. It would require Saudi Arabia to produce at its current production of 9.0 m b/d all through 2024.

The IEA further estimates that call-on-OPEC will average 27.7 m b/d in Q1-24. If we assume Iran @ 3.4 m b/d and Venezuela @ 1.0 m b/d then call-on-Saudi in Q1-24 will only be 8.6 m b/d. I.e. Saudi Arabia will have to cut production further to 8.6 m b/d in Q1-24. At that point Saudi Arabia will likely need or like other core OPEC members like Iraq, Kuwait and UAE as well as Russia to join in.

Implied call-on-Saudi. Call-on-OPEC is set to decline from 28.8 m b/d to 28.3 m b/d to 2024. If all OPEC members produced the same in 2024 as in 2023 then call-on-Saudi would fall by 0.5 m b/d to 9.9 m b/d. But if Venezuela and Iran increases their combined production by 0.8 m b/d YoY in 2024 then call-on-Saudi falls to 9.1 m b/d.

If we look a little broader on this topic and also include Libya, Nigeria and Angola we see that this group of OPEC members produced 11.4 m b/d in 2010, 10.1 m b/d in 2017 and only 5.1 m b/d at the low-point in August 2020. The decline by these OPEC members has of course the other OPEC and OPEC+ members to stem the rising flood of US shale oil production. The production from this unfortunate group of OPEC-laggards is however now on the rise reaching 7.5 m b/d in September. With more from Iran and Venezuela it could rise to 8.0 m b/d in 2024. Production from Nigeria and Angola though still looks to be in gradual decline while Libya looks more sideways. So for the time being it is all about the revival of Iran and Venezuela.

The unfortunate OPEC-laggards had a production of 11.4 m b/d in 2010. But production then fell to only 5.1 m b/d in August 2020. It helped the rest of OPEC’s members to manage the huge increase in US shale oil production. Production from these countries are now on the rebound. Though Nigeria and Angola still seems to be in gradual decline.

Oil production of some OPEC countries — Source: SEB graph, Blbrg data

What everyone needs to be attentive to is that call-on-OPEC and even more importantly call-on-Saudi can only erode to a limit before Saudi/OPEC/Russia will have to take action. Especially if the forecast for needed oil from OPEC/Saudi for the nearest 2-3 years is in significant decline. Then they will have to take action in the sense that they stop defending the price and allows the price to fall sharply along with higher production. And yet again it is US shale oil producers who will have to take the brunt of the pain. They are the only oil producers in the world who can naturally and significantly reduce their production rather quickly. I.e. the US shale oil players will have to be punished into obedience, if possible, yet one more time.

We don’t think that it is any immediate risk for this to happen as US shale oil activity is slowing while global oil demand has rebounded following Covid-lockdowns. But one needs to keep a watch on projections for call-on-OPEC and call-on-Saudi stretching 1-2-3 years forward on a continuous basis.

In its medium term oil market outlook, Oil2023, the IEA projected a fairly healthy development for call-on-OPEC to 2028. First bottoming out at 29.4 m b/d in 2024 before rising gradually to 30.6 m b/d in 2028. The basis for this was a slowing though steady rise in global oil demand to 105.7 m b/d in 2028 together with stagnant non-OPEC production due to muted capex spending over the past decade. But this projection has already been significantly dented and reduced in IEA’s latest OMR from October where call-on-OPEC for 2024 is projected at only 28.3 m b/d.

In a statement today the IEA projects that global oil demand will peak this decade and consume no more than 102 m b/d in the late 2020ies due to (in large part) rapid growth in EV sales. This would imply a call-on-OPEC of only 26.9 m b/d in 2028. It is not a viable path for OPEC to produce only 26.9 m b/d in 2028. Especially if production by Iran and Venezuela is set to revive. I.e. OPEC’s pie is shrinking while at the same time Iran and Venezuela is producing more. In this outlook something will have to give and it is not OPEC.

One should here turn this on its head and assume that OPEC will produce 30 m b/d in 2028. Add OPEC NGLs of 5.6 m b/d and we get 35.6 m b/d. If global oil demand in 2028 stands at only 102 m b/d then call-on-Non-OPEC equates to 66.4 m b/d. That is 3.1 m b/d less than IEA’s non-OPEC production projection for 2028 of 69.5 m b/d but also higher than non-OPEC production projection of 68.8 m b/d (IEA, Oct-23) is already 2.4 m b/d too high versus what is a sustainable level.

What this of course naturally means is that oil producers in general cannot have production growth as a strategy in a peak-oil-demand-world with non-OPEC in 2024 already at 2.4 m b/d above its sustainable level.

The US is set to growth its hydrocarbon liquids by 0.5 m b/d YoY in 2024. But in a zero oil demand growth world that is way, way too much.