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The Energy Report: Dreams Die Hard

Published 06/12/2024, 09:44 AM
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The IEA has a dream to cope with anything. If they see the wonder, of a fairy tale, they can take the future, even if they fail. The International Energy Agency is predicting “Peak Oil Demand” again. Well, this time they are serious. Oh, I know you may be skeptical because this is the same agency that predicted peak oil production and peak oil demand time and time again, but maybe the 15th time is the charm. And you know they’ve got to be serious because they basically are predicting that after 2026 that the growth of oil supply will grow quicker than demand leaving a massive potential oil glut in the future with massive spare production capacity. Well at least then maybe they can get the SPR filled back up. That’s because the IEA expects that the demand for oil is going to plateau in the years 2029 to the year 2030.

Maybe it’s because we’re all going to be flying around in nuclear-powered spacecraft or electric drones. I better see if my space suit still fits.

Now, regardless of IEA’s future energy outlook, the market is not too worried about that today and they’re starting to focus on the fact that maybe, just maybe, they underestimated the resolve of the OPEC plus cartel. Oil prices have recovered from their post-OPEC taper tantrum sell off and now are focused-on supplies that seem to be tightening.

The API gave us an indication of what could be the first of many drawdowns and crude supplies as they reported that they dropped last week by 2.428 million barrels. We also saw a supply drop in Cushing, OK of 1.937 million barrels which would suggest that last week’s uptick and refinery activity that was near at record highs is staying strong.

We also saw a drop in gasoline inventories of 2.54 million barrels. We will have to wait for today’s Energy Information Administration report to find out how much of that is going to be blending components. Maybe, just maybe, gasoline demand was not so bad after all.

Diesel supplies, according to the API, did rise by a meager 972,000 barrels. But as we all know those supplies are still below average.

Oil markets also must begin to be concerned about geopolitical risk. Russian war games off the coast of Cuba is sending a stark warning and making the United States maybe feel a little bit vulnerable about the potential for Russia’s ability to use supersonic missiles against the United States where we would have little defense. We had a report that the US government told the public NOT to panic. They have intelligence that the Russian nuclear submarine isn’t carrying any live nukes. The Cuban government has also told the public there are no nuclear weapons onboard. But no word from Moscow, so that should make you feel better. Probably, not a good time to try to accuse Mr. Putin of interfering in our election, just in case.

While the International Energy Agency is talking about a future with no oil, the Energy Information Administration (EIA) did raise their forecast for 2024 world oil demand growth by 180,000 barrels a day. The EIA is now predicting that oil demand will grow by 110 million barrels a day. EIA also raised their forecast for oil demand next year by 80,000 barrels a day and expects to see a 1.5 million barrel of oil increase.

If you’re keeping score, both the International Energy Agency and the Energy Information Administration had to raise their demand forecast to catch up to the OPEC plus cartel.

So in the demand prediction department, OPEC plus Russia continues to be the most accurate, at least based on a curve.

OPEC 2024 oil demand growth expectation was unchanged at 2.25 million barrels a day and they’re sticking to it. Based on the current demand trends and the fact that the other agencies must raise their demand growth forecast I would say that OPEC is going to be pretty close to the target. In 2025 they’re keeping their demand growth forecasts unchanged at 1.85 million barrels a day.

OPEC plus crude production fell by 123,000 barrels a day to 40.9 to 2,000,000 barrels a day in may base upon secondary sources. OPEC also said that they expect their competitor supply growth to grow at 1.2 million barrels a day in 2024 and 1.1 million barrels a day in 2025 driven by the good old United States, Canada, Brazil, and Norway.

While OPEC is predicting big things for the US oil patch the Energy Information Administration is only reporting a modest increase in US oil production and some people wonder if indeed US oil production is already near a peak. EIA said that US crude oil production will grow 2% from 2023 to an annual average of 13.2 million barrels per day (b/d) in 2024 and by another 4% in 2025 to 13.7 million b/d.

The EIA says that increasing production is led by the Permian region, which is the source of almost 50% of domestic crude oil production, followed by the Eagle Ford (NYSE:F) region and the Federal Gulf of Mexico.

And while the EIA is talking about increase gas production, they had to acknowledge the fact that low prices are curing low prices in the natural gas market. They pointed out that US natural gas production fell by  1% this year instead of the rapid growth that we have seen in previous years. The EIA says that the drop in natural gas production will continue to put upward pressure on the Henry hub natural gas prices and they expect that the price will average 250 this year, 13% higher than what they expected just last month.

Natural gas has been on fire as lower production and weather are in play. Fox Weather reported, “The Atlantic hurricane season is still forecast to be extremely active this year despite a quiet start so far, according to the latest outlook released Tuesday by researchers at Colorado State University (CSU), where seasonal forecasts were pioneered 40 years ago. Dr. Phil Klotzbach, a senior research scientist at CSU, and his team are maintaining their original forecast from April that calls for 23 named storms, of which 11 would become hurricanes. Five of those storms could reach major hurricane status of Category 3 or higher on the Saffir-Simpson Hurricane Wind Scale.

As Fox Weather predicted yesterday the National Hurricane Center is keeping an eye on a depression in the Gulf of  Mexico. The National Hurricane Center said A broad and elongated area of low pressure near the west-central coast of Florida is producing a large area of disorganized showers and thunderstorms. This system has moved little over the past few hours but is expected to move northeastward across Florida and move offshore of the U.S. Southeast coast within the next day. Although upper-level winds are expected to be only marginally conducive, some slow development is possible while the system moves offshore of the U.S. Southeast coast. Regardless of development, heavy rainfall is forecast to continue across portions of the Florida peninsula during the next few days. Formation chance through 48 hours low, 10 percent. * Formation chance through 7 days low, 20 percent.

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