IEA Oil Forecast

[jyl]

IEA's global oil forecast https://iea.blob.core.windows.net/assets/6ff5beb7-a9f9-489f-9d71-fd221b88c66e/Oil2023.pdf is worth reading.

FYI, forecasts are never "right" but they can be directionally useful or at least thought-provoking. I think a forecast that I disagree with is as useful as a forecast that I agree with, if it forced me to study the data and think hard. I don't know if I agree/disagree with this particular forecast or which parts of it; haven't done the work.

Basically, IEA thinks Western oil demand will peak in the very near future, while global demand will continue rising for a while, driven by India and China, before peaking somewhere around the end of this decade. The report explains the rationale and data behind this forecast.

Road fuel is the part of oil demand that IEA expects to peak first, due to EVs and rising ICE mpg.

"The adoption of tighter efficiency standards by regulators, structural changes to the economy and the ever-accelerating penetration of EVs are expected to powerfully moderate annual growth in oil demand throughout the forecast. Road transport demand will rapidly progress towards a post-pandemic peak of 45.3 mb/d in 2025, only marginally above the level of 2019, before embarking on a gradual decline. Globally, road transport oil demand will be 460 kb/d below 2019 levels by 2028. To achieve clear peaks in transport and overall demand, with swift subsequent reductions in use, further policy and behavioural changes will be needed. Gasoline demand will be disproportionately impacted as EVs progressively replace vehicles with internal combustion engines (ICE). About 80% of the 3 mb/d 2022-28 oil demand growth estimated to be displaced by vehicle electrification will be for gasoline. This means that the fuel is likely to exhibit the earliest and most pronounced peak in demand. Usage will never return to 2019 levels and the postpandemic peak could come as early as 2023. Following a brief plateau, the decline is forecast to accelerate from 2026 onwards, with 2028 demand 900 kb/d below that of 2019. Total transport demand will plateau in the second half of our forecast period, with its high-water mark expected in 2026 before ebbing gradually as declines in road use outweigh a continued increase in jet and marine fuels consumption."

I own energy stocks, so will be studying this more closely. If true . . . rising oil demand in India and China may sustain Russia for a period, but may not be as helpful for Western oil & gas names. The US oil states may have a hard couple of decades. The US really needs to get its EV supply chain together, fortunately the number of battery factories etc here is about to soar.

P.S. Oil and gas is about 35% of Texas’ economy (sum of direct and indirect). Remember how painful each oil bust has been there? Now imagine when oil and gas consumption starts declining for good. Now imagine how it will feel in Saudi!

[jyl]

On the supply side, Russia’s invasion of Ukraine, sanctions therefor, and dimming opportunities for Western oil companies in Russia and in the Middle East have lit off a push by the global super-majors new sources in non-OPEC+ places where supermajors can still lead – Algeria, Guyana, Nigeria, Azerbaijan, etc. While US production stagnates and OPEC+ restricts supply, very significant increases in production are coming from those fields. Maybe more on the gas side, but offshore oil too. Someday Venezuela, Brazil, Mexico will get their oil act back together.

(I think US investors can over-focus on shale, where investment is measured and production is growing only slowly. The big investments are by the global super-majors - Exxon, Chevron, Shell, BP, Total - and the slightly smaller global players - CNOOC, Eni, Equinor, etc. - and their big investments are outside of the US, where gas can be piped to market and offshore fields with tens of billions of barrels are waiting to be found. Not in drilling short-lived gassy wells in Texas shale.)

I can see a scenario in a couple years where this new supply growth collides with slowing-then-peaking demand. Assuming the OPEC+ countries will have failed to develop an economic alternative to oil and gas, which seems highly likely - what, is Russia going to be something other than a resource economy by then? are Saudis going to have figured out how to make things other than oil? Ha ha ha - well, cartel cohesion may not last.

I hope I get out of my energy stocks before oil starts its trip from >$100 to . . . $30?