"I really don’t want these prices to be sustained, it will lead to eventual increased supply or force business into alternatives.the better question is how Woodside recycle these profits for sustainable growth.planting trees is a start (jokes)…but seriously these prices are destroying demand…."I think that, in terms of oil pricing, we are a long way from demand destruction.
The relatively strong oil price in recent months is still coinciding with a very meaningful rebound in global demand.
Despite the 120m surge in global Delta Covid cases over the past 6 months, the IEA has not downgraded its demand forecasts from its March 2021 report,
Oil 2021 - Analysis and forecast to 2026[
https://iea.blob.core.windows.net/assets/1fa45234-bac5-4d89-a532-768960f99d07/Oil_2021-PDF.pdf ]
In that report, demand was predicted to be up 5.4 mbl/d in 2021 and up a further 3.1 mbl/d in 2022, and that has barely changed.
From the IEA's latest monthly report [
https://www.iea.org/reports/oil-market-report-september-2021 ]:
View attachment 3630449So underlying demand is effectively stronger than the IEA expected 6 months ago (given its demand forecasts are unchanged despite the impacts of a surge in Covid cases globally, which the IEA could not have foreseen at the time of its March forecasts).
So demand is strong but supply is not keeping pace.
Inventories are falling (in the OECD they are ~220 mbl lower than the 2016-2020 average, and in the US they are currently at 7 year-lows - see graphic below - having fallen by 160 mbl over the past 12 months):
View attachment 3630491It should not be lost on observers of the oil market that when crude inventories where last at their current levels - which was between 2011 to 2014 - the oil priced averaged around US$100/bbl.
What's more, back in 2011 -2014 there was still a significant level of investment occurring in upstream oil production capacity around the world - it was running almost US$1.0bn pa in 2014; today that equivalent figure is probably close to US$300bn.
So the inventory position today, compared to 2011 to 2014, is virtually the same, but in 2014 the world was spending triple the amount it is today in keeping the market supplied.
One doesn't need to have a post graduate degree in Commodity Economics to work out the implications of that observation.
Moreover, that both the US and China are currently releasing crude from strategic reserves to keep the market supplied is not an insignificant development, I think:
View attachment 3630500So, demand is strong, supply is struggling, states are needing to supplement the market from strategic reserves....
The pieces of the jigsaw puzzle that is the global oil market point to a market which is tightening to quite a degree.
Six or so months ago, when I first commenced top-down research on the sector, I concluded that an under-supplied market would be a late- 2022, or early-2023, phenomenon, but it is happening a lot faster than even my initial bullish assessment.
PS. It is probably not common knowledge that the USA is an important producer in the global oil market - having gone from production of ~5 mbl/d in the early 2000s (until around 2010), to 13 mbl/d by 2019; so an 8 mbl/d increase in the space of a decade.
For context, non-OPEC supply (excluding biofuels) is currently around 60 mbl/d, so an 8mbl/d increase in supply - which is what the USA did - is a very significant market development.
Trouble is, a lot of that increased US supply was from the exploitation of US shales, something which has served its time.
So the US - having gone from a bit player in the global oil industry, to a very large supplier - is on the clear decline again. US crude output has fallen from the 2019 peak of 13mbl/d to the current level of 10 mbl/d, and I don't expect there is going to be much of an increase on that level.
Because, despite the strong rebound in oil prices over the course of 2021, the oil rig count in the US has recovered to only half of the 2019 level, and is a mere one-quarter of the peak at the last oil price, in 2014/2015:
View attachment 3630512
(20min delay)