Oil Outlook 2024 Part 1: The Supply-Side Crude Shock

Keith Kohl

Written By Keith Kohl

Posted October 24, 2023

The leaves are changing all too quickly this year. 

Typically, this is the time of year when we see a little seasonal reprieve from higher oil prices. The summer driving season has long ended, with lower demand for fuel giving us a chance to refill inventories and take stock of the year ahead. 

Unfortunately for some, things don’t look so rosy in 2024. 

We’re barreling into 2024 with extremely bearish inventories both in the U.S. and abroad. The latest EIA oil report showed another large decline in our commercial stockpiles of crude oil, pushing levels to roughly 5% below the five-year average. 

The situation isn’t much better around the world, either. Global oil inventories have fallen to roughly 63.5 million barrels — their lowest point since 2020. 

Of course, your mood wholly depends on which side you’re positioned… 

Because right now, a strong bullish case has formed for global oil markets next year.

Supply-Side Shocks Are Coming

All year, we’ve both been flooded with wildly optimistic supply projections. Don’t be shocked when this optimism fails to materialize. 

We recently discussed the Biden administration's desperate Hail Mary. Rather than pushing for higher domestic production within our own tight oil plays, the U.S. has opted to pin its hopes on an oil industry that has experienced a spectacular crash over the last decade — Venezuela. 

When U.S. sanctions on Venezuela’s oil industry were lifted last week, the goal was to add a fresh supply of heavy oil to U.S. refineries along the Gulf of Mexico. 

Those refineries are specifically geared toward heavy oil, which provides crucial products like diesel that are in short supply today. Right now, our inventories of distillate fuel are 12% below the five-year average. 

But as we both know, there’s a huge catch to this plan of action.

Call me a pessimist, but I don’t believe PDVSA — Venezuela’s state-run oil company — will ever get the country’s oil production back on track… and I’m not the only one who believes that. 

Our own EIA recently reiterated the fact that underinvestment and corruption within Venezuela’s energy sector will limit its output growth. 

The other shock that may end up surprising everyone is the lack of output growth within the United States. 

So far in 2023, the EIA has been extremely optimistic with its production projections. To be fair, watching U.S. output grow and nearly reach its pre-COVID peak around 13 million barrels per day has been a sight for sore eyes. 

However, I would be careful about counting your barrels before they’re drilled.

Next year will bring another decisive election to the front of the stage, and, if it hasn’t become clear by now, politics are already messing up future production growth. 

At the end of September, the Department of the Interior announced that it was phasing down oil and gas leases in the Gulf of Mexico to make room for more offshore wind; this is on top of an absolutely zero lease sale planned in Atlantic, Pacific, and Alaskan waters. 

So much for offshore production coming to the rescue. 

What we are starting to see, however, is that Big Oil is on a shopping spree right now to grow production. Remember Exxon’s buyout of Pioneer Natural Resources for $60 billion just two weeks ago? 

Yesterday, we learned that Chevron is now going to dish out approximately $53 billion in an all-stock transaction to buy Hess, which gives the company an additional 465,000 net acres of shale production in the U.S., a solid midstream operation in the Permian Basin, and a 30% stake in the Stabroek Block in Guyana. 

Big Oil is just starting to make its moves. 

Until next time,

Keith Kohl Signature

Keith Kohl

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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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