Tag: Oil

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.

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 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.

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.

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.

The Energy Information Administration released its Short-Term Energy Outlook for November, and it shows that OECD oil inventories likely bottomed in this cycle in June 2018 at 2.802 billion barrels. Stocks peaked at 3.205 billion in July 2020. In October 2020, it estimated stocks dropped by 62 million barrels to end at 3.069 billion, 189 million barrels higher than a year ago.

The EIA estimated global oil production at 91.89 million barrels per day (mmbd) for October, compared to global oil consumption of 95.31 mmbd. That implies an undersupply of 3.42 mmbd or 106 million barrels for the month. About 45 million barrels of the draw for October is attributable to non-OECD stocks.

For 2020, OECD inventories are now projected to build by net 104 million barrels to 2.982 billion. For 2021 it forecasts that stocks will draw by 55 million barrels to end the year at 2.927 billion.

The EIA forecast was made incorporates the OPEC+ decision to cut production and exports. According to OPEC’s press release: Continue reading "World Oil Supply And Price Outlook, November 2020" →

The Energy Information Administration released its Short-Term Energy Outlook for September, and it shows that OECD oil inventories likely bottomed in this cycle in June 2018 at 2.804 billion barrels. Stocks peaked at 3.204 billion in May 2020. In September 2020, it estimated stocks dropped by 34 million barrels to end at 3.090 billion, 123 million barrels higher than a year ago.

The EIA estimated global oil production at 91.70 million barrels per day (mmbd) for September, compared to global oil consumption of 95.26 mmbd. That implies an undersupply of 3.56 mmbd or 110 million barrels for the month. About 76 million barrels of the draw for September is attributable to non-OECD stocks.

For 2020, OECD inventories are now projected to build by a net 87 million barrels to 2.967 billion. For 2021 it forecasts that stocks will draw by 46 million barrels to end the year at 2.921 billion.

The EIA forecast was made incorporates the OPEC+ decision to cut production and exports. According to OPEC’s press release: Continue reading "World Oil Supply And Price Outlook, October 2020" →

The Energy Information Administration released its Short-Term Energy Outlook for September, and it shows that OECD oil inventories likely bottomed in this cycle in June 2018 at 2.804 billion barrels. It estimated stocks dropped by 45 million barrels in August to end at 3.120 billion, 179 million barrels higher than a year ago. It estimates that inventories peaked in May 2020 at 3.209 billion.

The EIA estimated global oil production at 91.55 million barrels per day (mmbd) for August, compared to global oil consumption of 94.31 mmbd. That implies an undersupply of 2.76 mmbd or 85 million barrels for the month. About 32 million barrels of the draw for August is attributable to non-OECD stocks.

For 2020, OECD inventories are now projected to build by a net 46 million barrels to 2.939 billion. For 2021 it forecasts that stocks will draw by 44 million barrels to end the year at 2.895 billion.

The EIA forecast was made incorporates the OPEC+ decision to cut production and exports. According to OPEC’s press release: Continue reading "World Oil Supply And Price Outlook - September 2020" →

The Energy Information Administration released its Short-Term Energy Outlook for August, and it shows that OECD oil inventories likely bottomed in this cycle in June 2018 at 2.804 billion barrels. It estimated stocks dropped by 58 million barrels in July to end at 3.113 billion, 172 million barrels higher than a year ago. It estimates that inventories peaked in May 2020 at 3.181 billion.

The EIA estimated global oil production at 88.72 million barrels per day (mmbd) for July, compared to global oil consumption of 93.42 mmbd. That implies an undersupply of 4.69 mmbd or 146 million barrels for the month. About 88 million barrels of the draw for July is attributable to non-OECD stocks.

For 2020, OECD inventories are now projected to draw by a net 34 million barrels to 2.859 billion. For 2021 it forecasts that stocks will draw by 102 million barrels to end the year at 2.757 billion.

The EIA forecast was made to incorporate the OPEC+ decision to cut production and exports. According to OPEC’s press release: Continue reading "World Oil Supply And Price Outlook, August 2020" →