There are several critical questions facing oil and gas investors today. The two we see most often are 1: oil is going to fade away as we are near peak oil demand. And 2: Will the energy transition to net zero and renewable energy kill the oil and gas market?
The answer to those to questions is complicated but getting easier to answer. The energy transition to all electric is failing, and energy demand is going through the roof thanks to AI. The renewable and electric car push was supposed to have taken a huge toll on oil and gas demand, but on the contrary we we are seeing natural gas and oil demands remaining strong.
Much like the famous “Mores Law” stating that the number of transistors in the Intel processors would double every two years, we are seeing a similar rule for oil and gas demand. The harder the global governments force an “Energy Transition Away from Fossil Fuels” we see an increase in coal, natural gas and oil demand.
We need all forms of energy, and the market for oil and gas traders is looking bright. AI demand with data centers, and LNG exports are driving the natural gas markets, and the geopolitical tensions around the world are going to hold the prices for oil steady between the $70 and $85 range. Saudi Arabia really needs the sweet spot of $85 to $95 for their budgets, and they are targeting production numbers from their membership to target that range.
At Sandstone Group we have a global reach and relationships in the oil and gas marketplace. We look for trends and rely on trusted sources for long-term planning on our projects.
OPEC’s perspective on oil prices for the next year, as inferred from various analyses and forecasts up to September 2024, indicates a cautious outlook with adjustments in demand forecasts. Here’s a synthesis based on the information available:
- Demand Forecast Adjustments: OPEC has revised its demand growth forecast downwards for 2024, initially suggesting a growth but later adjusting it to reflect slower growth than previously anticipated. This revision indicates a more conservative outlook due to factors like economic slowdowns, particularly in China, and the increasing adoption of electric vehicles (EVs) which might reduce oil demand.
- China is buying everything it can: So many people and groups are pricing a lower demand from a potential recession in China, they are still buying all of the oil they can and eliminating that key data point for the oil market Bears.
- Price Expectations: While specific price forecasts from OPEC directly aren’t detailed in the provided snippets, the context around OPEC’s actions and external analyses suggest an expectation of price stabilization or a slight increase if OPEC+ maintains production cuts. For instance, an energy firm’s analysis mentioned OPEC gaining more control over the oil market in 2024, potentially leading to a scenario where they could raise production in the second half of the year if demand supports it, with prices expected to hover in the $75-$80 per barrel range by the end of the second quarter of 2024.
- Market Dynamics: The market sentiment, as reflected by posts on X and analyses, shows a spectrum of expectations. Some believe oil prices could remain bearish through 2025, with mentions of prices potentially dipping into the $45-60 range due to oversupply concerns and higher EV adoption. Conversely, others, like JPMorgan, forecast Brent to average around $75 a barrel in 2025, suggesting OPEC+ might need to cut production deeper to maintain prices in the $80s.
- OPEC’s Strategy: OPEC’s strategy seems to lean towards maintaining or slightly adjusting production cuts to balance the market, aiming for stability rather than a significant price surge. This approach is evident from decisions to delay output hikes, indicating a cautious approach to not flood the market but also not to let prices drop too low due to oversupply.
Given this context, while OPEC itself might not have explicitly stated a specific price target for next year in the provided information, the collective actions and forecasts suggest they are aiming for a balanced market where prices could stabilize or slightly increase, potentially within a range that might not exceed $80 per barrel significantly unless there are unforeseen demand spikes or supply disruptions. However, the market’s inherent unpredictability, influenced by geopolitical events, technological advancements like EV adoption, and economic recoveries or downturns, means these forecasts are subject to change.
The bottom line: You cannot make pharmaceuticals, paint, plastics or anything we have become accustomed to using in modern society without oil and natural gas. There is a huge investment deficit into oil right now and the global economy needs about four trillion dollars to be invested just to meet the decline curves to meet current demand. So, I see a huge Bull market on the horizon.
Please get in touch with Michael or me to talk about oil prices, if you are procuring oilfield assets, selling or buying LNG, jet fuel, or other energy commodities.
Thanks, and we appreciate all of our readers and podcast fans. – Stu
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