World oil demand is at record highs but you wouldn’t know it from the price of oil, which is down another 20-cents to $58.50 today. Many global assets are at records but crude is down 18% and a far cry from the $130 days of 2022.
The main drag has been OPEC+ relentlessly adding barrels to the market.
The cure for low prices is low prices though and that’s going to curb investment in new wells in the year ahead. Demand should also rise by another 1 mbpd next year and that should slowly balance the market. Whether that comes in 2026 or 2027 is the tougher question to answer.
What makes it so compelling is that there are a wide range of ideas about what’s happening in the market. As it stands, there are forecasts from the IAE of a surplus of 4 million barrels per day next year. That’s a massive glut. But then you have Conoco’s CEO saying this:
“We don’t see floating inventories rising, we don’t see a lot more medium-sour crude coming into the US Gulf Coast, which typically happens if there’s a lot of spare capacity,” “
“You look at the physical market, you don’t see that
playing itself out,” he said. “So there could be a collision
coming.”
“We’re all watching some of those kinds of signals
wondering: when is the bearishness going to kick in?” “Is there going to be a big flood of supply — which we frankly don’t see? A lot of the OPEC+ increases were paper barrels, they were already in the market.”
That would be typical of OPEC, which is always bluffing and playing games but the cost of being wrong probably outweighs the cost of being right so it’s tough to buy crude at $58 right now.
But everyone is seeing this glut, so why aren’t prices lower?
Over at Exxon, you have the top people saying they’re bullish ‘medium term’ which implies that they’re bearish in the short term.
In the bullish scenario, the OPEC barrels really are paper barrels and there is no spare capacity. That would rapidly and massively tighten the crude market. Alternatively, the glut could be months away and when crude falls into the $40s next year, drilling will stop until prices rise again.
In all these scenarios, there is some real volatility (and opportunity) to come, but right now the future is foggy. For me, I lean bearish at the moment as I can’t believe that OPEC has pulled off one of the biggest bluffs of all time.
This article was written by Adam Button at investinglive.com.