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. Is the bearish tide finally turning?
Perhaps, but I wouldn’t hold your breath just yet. Maybe it’s just me, but every time I see a huge, oftentimes irrational, sell-off in crude oil, I can’t help but see it as a buying opportunity.
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.
At Energy and Capital, we recently discussed the Biden administration’s desperate Hail Mary in the oil markets. 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 in mid-October, 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 2023, 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?
On October 23, 2023, 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.
Which Direction Will Oil Head in 2024?
If you have a dime invested in the oil sector, it’s probably a question that you’ve mulled over in your head recently.
The Wall Street Journal reported in December 2023 that the IEA lowered its demand growth projections for 2023 to 2.3 million barrels per day. More importantly, it weakened its projections for next year, which the IEA now only expects to grow by 1.1 million barrels per day.
At that rate, global consumption in 2024 will average 102.8 million barrels per day. It should also be noted that the IEA actually raised its 2024 demand projections slightly compared to its previous estimate.
Still, the IEA is banking on slower economic growth worldwide to cut demand growth in half next year. Not only is global economic growth expected to slow to 2.6%, but their predictions are largely based on a sharp slowdown in China’s growth to just 4.2%.
Keep in mind, this is supposed to occur as non-OPEC supply in the U.S., Guyana, and Brazil are expected to jump by 1.8 million barrels per day.
Personally, I’m not convinced that we should be as pessimistic over IEA’s predictions. More importantly, I believe that the market is overestimating non-OPEC’s ability to raise supply.
While it’s true that U.S. output is at record levels again, how much higher we can take it remains to be seen — especially in an environment with fewer rigs out in the field, as well as a hostile administration toward the oil and gas industry that is greatly hindering offshore growth by limiting lease sales.
Of course, whenever we see a bearish outlook from the IEA, it’s only a matter of time before we see another bullish outlook by OPEC; the two have been going back and forth all year trying to push separate narratives on oil’s direction.
And like clockwork, OPEC announced that it was leaving its global demand scenario for 2024 unchanged. The oil cartel still believes that demand will average 2.2 million barrels per day next year.
Over the next twelve months, one of them will be gloating, and the other will have egg all over their face.
The Demand Delusion
Let me be as clear as day about what’s going to happen next year:
In 2024, the world will consume more petroleum products than ever before.
The real question is how high global consumption will climb… And the answer depends on whom you’re asking.
According to the EIA, global liquid fuels consumption growth will contract to 1.3 million barrels per day:
In the United States, our petroleum demand is expected to slightly increase by 150,000 barrels per day and average 20.22 million barrels per day.
Meanwhile, the EIA sees further declines in global crude inventory during the first half of 2024 thanks to OPEC+ extending their output cuts.
But we hold no illusion that U.S. demand will be the driving force behind growing global consumption. For that, we have to look to China and India, which together are expected to consume an average of 21.94 million barrels per day — about one-fifth of the world’s petroleum demand.
You can bet we’ll all be paying more for those barrels, too. Sticking to the EIA’s price projections, WTI crude will average $94.19 per barrel.
However, keep in mind that this sorely undercuts the incredible risk premium that geopolitical volatility could add to oil prices any day, especially given the powder keg inside the Middle East right now between Israel and Hamas. This month alone we’ve seen Iran calling for a complete oil embargo to be enacted.
Remember, Russia’s invasion of Ukraine drove crude prices to over $120 per barrel.
Now ask yourself how high oil will jump on further escalation in the Middle East.
What’s also interesting is that the EIA’s projections are a little too optimistic.
The International Energy Agency has forecasted global oil demand to rise by 880,000 barrels per day in 2024, and OPEC is convinced that the number will be closer to 2.4 million barrels per day!
Regardless of who’s projections turn more accurate, the fact remains that demand will be at record levels.
Energy and Capital’s Oil Stocks to Watch in 2024:
- Pioneer Natural Resources (NYSE: PXD)
- Halliburton Company (NYSE: HAL)
- Occidental Petroleum Corporation (NYSE: OXY)
Oil Surge Imminent — The No. 1 Oil Stock to Buy in 2024
The oil surge we’ve been waiting for is here.
Turn on the TV or open the financial newspaper, and you’ll hear about how oil just kicked off a major rally.
Major banks and sector analysts say we’re heading for triple-digit oil prices by the end of 2023.
Jeff Currie, the global head of Commodities at Goldman Sachs, expects $110 oil.
Daniel Yergin, the chairman of S&P Global, said oil prices could hit $121.
Amrita Sen, director of research at Energy Aspects, said $130 oil is not out of the question.
But here’s the thing…
My colleague Keith Kohl at Energy and Capital says they’re all dead wrong.
Keith has a 20-year track record in the energy sector with more than a dozen 100% oil and gas recommendations under his belt.
He says this is NOT your typical oil price rally — it’s much, much different.
Due to the convergence of three, powerful economic triggers, Keith says oil prices will not come down for years.
As Keith outlines in this new and urgent briefing, we saw this happen at the beginning of the last two oil bull markets…
When these “perfect storm” conditions caused oil prices to skyrocket…
And 11 different oil and gas stocks made investors 1,000% returns or more.
That’s why Keith just announced his No. 1 oil stock of the decade.
You can get the name, ticker symbol, and full analysis inside.
But I suggest you act quickly.
Global oil demand has already hit 103 million barrels per day this year.
To be clear, we’ve never seen oil demand hit levels this high before — ever!
So you want to get in on this stock now…
BEFORE oil prices surge even further.