World Oil Supply And Price Outlook, February 2021

The Energy Information Administration released its Short-Term Energy Outlook for February, and it shows that OECD oil inventories likely peaked at 3.210 billion in July 2020. In January 2021, it estimated stocks dropped by 15 million barrels to end at 3.030 billion, 127 million barrels higher than a year ago.

The EIA estimated global oil production at 93.95 million barrels per day (mmbd) for January, compared to global oil consumption of 93.89 mmbd. That implies an oversupply of 60,000 b/d, or 1.9 million barrels for the month. That implies non-OECD stocks dropped by 17 million barrels.

For 2021, OECD inventories are now projected to draw by net 86 million barrels to 2.959 billion. For 2022 it forecasts that stocks will draw by 24 million barrels to end the year at 2.935 billion.

Oil

The EIA forecast was made incorporates the OPEC+ decision to cut production and exports. According to OPEC’s press release January 5, 2021: Continue reading "World Oil Supply And Price Outlook, February 2021"

U.S. Crude Production Rebounds In November

The Energy Information Administration reported that November crude oil production rose by 692,000 barrels per day, averaging 11.124 mmbd, its highest since March. This follows a 438,000 b/d drop in October and a 2 million barrel per day collapse in May. The November 914 figure compares to the EIA’s weekly estimates (interpolated) of 10.910 mmbd, a figure that was 214,000 b/d lower.

Crude

The primary cause of the rebound in production was the return of output in the U.S. Gulf Coast. USG production rose by 645,000 b/d from November, and Oklahoma output rose by 29,000 b/d, while New Mexico rose by 19,000 b/d. Continue reading "U.S. Crude Production Rebounds In November"

World Oil Supply And Price Outlook, January 2021

The Energy Information Administration released its Short-Term Energy Outlook for January, and it shows that OECD oil inventories likely bottomed in this cycle in June 2018 at 2.802 billion barrels. Stocks peaked at 3.210 billion in July 2020. In December 2020, it estimated stocks dropped by 40 million barrels to end at 3.061 billion, 172 million barrels higher than a year ago.

The EIA estimated global oil production at 93.45 million barrels per day (mmbd) for November, compared to global oil consumption of 95.59 mmbd. That implies an undersupply of 2.14 mmbd or 64 million barrels for the month. About 30 million barrels of the draw for November is attributable to non-OECD stocks.

For 2020, OECD inventories are now projected to build by net 127 million barrels to 3.006 billion. For 2021 it forecasts that stocks will draw by 95 million barrels to end the year at 2.910 billion.

Oil

The EIA forecast was made incorporates the OPEC+ decision to cut production and exports. According to OPEC’s press release on January 5, 2021: Continue reading "World Oil Supply And Price Outlook, January 2021"

U.S. Crude Oil Production Fell In December

According to the Energy Information Administration, U.S. oil inventories (excluding SPR) fell by 14.9 million barrels last week to 1.342 billion, and SPR stocks were unchanged last week. Total stocks stand 47 mmb above the rising, rolling 5-year average and about 81.0 mmb higher than a year ago. Comparing total inventories to the pre-glut average (end-2014), stocks are 283 mmb above that average.

Oil

Crude Production

Production averaged 11.0 mmbd last week, unchanged from the prior week. It averaged 11.025 mmbd over the past 4 weeks, off 14.25 % v. a year ago. In the year-to-date, crude production averaged 11.504 mmbd, off 6.5 % v. last year, over 600,000 b/d lower. Continue reading "U.S. Crude Oil Production Fell In December"

World Oil Supply And Price Outlook, December 2020

The Energy Information Administration released its Short-Term Energy Outlook for December, and it shows that OECD oil inventories likely bottomed in this cycle in June 2018 at 2.804 billion barrels. Stocks peaked at 3.210 billion in July 2020. In November 2020, it estimated stocks dropped by 34 million barrels to end at 3.057 billion, 169 million barrels higher than a year ago.

The EIA estimated global oil production at 93.45 million barrels per day (mmbd) for November, compared to global oil consumption of 95.59 mmbd. That implies an undersupply of 2.14 mmbd or 64 million barrels for the month. About 30 million barrels of the draw for November is attributable to non-OECD stocks.

For 2020, OECD inventories are now projected to build by net 127 million barrels to 3.006 billion. For 2021 it forecasts that stocks will draw by 95 million barrels to end the year at 2.910 billion.

Oil

The EIA forecast was made incorporates the OPEC+ decision to cut production and exports. According to OPEC’s press release:

Adjust their overall crude oil production downwards by 9.7 mb/d, starting on May 1st, 2020, for an initial period of two months that concludes on June 30th, 2020. For the subsequent period of 6 months, from July 1st, 2020 to December 31st, 2020, the total adjustment agreed will be 7.7 mb/d. It will be followed by a 5.8 mb/d adjustment for a period of 16 months, from January 1st, 2021, to April 30th, 2022. The baseline for the calculation of the adjustments is the oil production of October 2018, except for the Kingdom of Saudi Arabia and The Russian Federation, both with the same baseline level of 11.0 mb/d. The agreement will be valid until April 30th, 2022. However, the extension of this agreement will be reviewed during December 2021.”

Oil

Oil Price Implications

I updated my linear regression between OECD oil inventories and WTI crude oil prices for the period 2010 through 2019. As expected, there are periods where the price deviates greatly from the regression model. But overall, the model provides a reasonably high r-square result of 79 percent.

Oil

I used the model to assess WTI oil prices for the EIA forecast period through 2020 and 2021 and compared the regression equation forecast to actual NYMEX futures prices as of December 31st. The result is that oil futures prices are presently undervalued through the forecast horizon in 2021.

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Uncertainties

April 2020 proved that oil prices can move dramatically based on market expectations and that they can drop far below the model’s valuations, whereas prices in May through December proved that the market factors in future expectations beyond current inventory levels.

The most important uncertainty is how deeply and how long the coronavirus will disrupt the U.S. and world economies. The announcements of vaccines and economic assistance lends credibility that a recovery is in store for 2021.

But what kind of recovery will it be? How much of business and daily life will be altered for the longer-term? Online meetings instead of face-to-face meetings, work-from-home, and other such changes may alter petroleum demand patterns long-term.

Conclusions

Equally, on the supply side, the transition away from fossil fuels has taken a big leap forward in 2020, with the major oil companies announcing investment shifts. The petroleum era is coming to a close, at least in terms of sustained growth.

Check back to see my next post!

Best,
Robert Boslego
INO.com Contributor - Energies

Disclosure: This contributor does not own any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.