Strange things are taking place in global oil markets.
To the casual observer, all is well as WTI crude prices this week are once again fighting to breach $70 per barrel; Brent crude is struggling to break $75 per barrel.
Look a little deeper, and you’ll find the situation is getting quite interesting.
For years, OPEC and the IEA have been battling back and forth in the media, each putting out their own overly bullish and bearish forecasts to counter the other in a neverending spat.
However, things lately have been feeling a bit… upside down?
At least, that’s the feeling you might get after watching OPEC’s latest downward revision for global oil demand growth for 2024, then lowering its outlook for demand growth next year.
Meanwhile, the IEA came out and actually raised its forecast for this year, now believing that global demand will rise by 921,000 barrels per day in 2024. In fact, current IEA projections are for global demand to hit 102.8 million barrels per day this year, then climb to 103.8 million barrels per day in 2025.
Next thing you’re going to tell me is that President Biden is the one pushing us closer to World War III… surely that would never happen, right?
Right now, there are just two factors deciding the fate of oil prices in the near-term.
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If you’re wondering what would make both the IEA and OPEC start revising their projections, the first place to look is China. Both see lackluster demand ahead for the Middle Kingdom, and the country’s recent debt package of 10 trillion yuan hasn’t given either much confidence.
Keep in mind that Chinese crude imports are still averaging around 10.8 million barrels per day, which is down about 3% year-over-year.
However, this is going to have a much different effect than most people think.
You see, OPEC may be playing a different kind of game. By lowering their demand forecast, OPEC is giving itself a reason to nix their plans to delay their output hike in December and keep the production cut deal in place.
Remember, unwinding those production cuts was supposed to happen in October. Nearly everyone is expecting to see them raise output in December… I’m not so certain anymore.
And then we have the second catalyst supporting oil prices — good, old-fashioned geopolitical mayhem.
The moment President Biden authorized Ukraine to use U.S. missiles to strike deep into Russia, higher crude prices were all but guaranteed.
But hey, why worry about the consequences when you can just leave them for the next guy?
That news alone is what’s buoying crude prices today, and makes it a bit more difficult for a swift end to that war that President Trump has promised.
The dirty little secret to U.S. oil stocks most investors don’t realize is that we don’t need oil prices over $100 per barrel to make a tidy profit in the sector. In fact, most of those U.S. oil players are more than capable of making a decent return with prices at $70.
Why?
Because the days of a debt-fueled drilling frenzy are long gone. They’ve been replaced by operators that are getting every drop of oil they can out of the ground while spending less and drilling fewer wells.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
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