Pessimism about demand growth is weighing on oil prices worldwide, as demand forecasts for 2024 have been steadily revised downwards.
The International Energy Agency and Energy Intelligence (IEA) now see demand growing by about 1 mln b/d, and even bullish OPEC sees reduced demand growth.
But OPEC still expects the world to consume 2.1 mln b/d more oil in 2024 than it did last year, a small drop from its earlier estimate of 2.2 mln b/d.
Wall Street analysts see optimism returning as the S&P 500 nears record highs, but oil markets remain volatile. Easing geopolitical fears and demand concerns keep prices on edge, with benchmark Brent crude in the $77-81/b, even with supply growth muted and demand reaching new highs.
Despite a multitude of bullish factors such as multiple round of OPEC+ cuts, the Middle East conflict, the Russian invasion of Ukraine and record demand of less than 100 mln b/d, oil prices are currently down from where they were a year ago (as well as 10 years ago), mostly due to too much non-OPEC oil coming to the market.
In the next few weeks, OPEC+ producers must take a delicate decision about whether to proceed with planned output increases from October, or postpone them because of an uncertain economic outlook. But postponing risks concedes even more market share to rivals.
Non-OPEC+ oil production is set to rise by 1 million b/d in 2024 and 1.6 million b/d in 2025.
At current oil production levels, Saudi Arabia needs more than $100 a barrel to balance its budget.
Exxon expects oil demand to remain around 100 million b/d and warns of oil shock if suppliers assume demand will fall by 2050. This bullish forecast contrasts with predictions of rapid transition form fossil fuels by the IEA. This is also the view held by most majors.
BP plans to drill new Gulf of Mexico field as profits beat forecasts. It now has renewed confidence in the future of oil.
The U.S. Federal Reserve has given the strongest signal yet that borrowing costs will soon fall, likely from September. Lower interest rates usually stimulate economic growth, which can bolster crude oil demand.
Norway is preparing for a substantial downturn in oil and gas production, with an anticipated decline starting as early as next year. But as Norway winds down, the Middle East is powering up.
LNG glut to keep prices low
The International Gas Union says energy demand is not reflected in climate planning – there is a “significant gap” between forecast demand based on current consumption patterns and net zero pathways devised by the IEA.
The IGU warned of energy shortages by 2030.
A wave of new LNG projects are due to be commissioned by the end of the decade, leading to a sharp increase in supply. This runs the risk of creating a glut keeping prices low.
Qatar’s break-even for gas production and liquefaction at its expansion phases is estimated at around $2.70-2.80/MMBtu based on a 12% IRR. This means that it can outbid any competitor and will be able to place its supply competitively in the market even without term deals.
Supermajors are scaling back renewables projects and investments due to poor returns compared to LNG and are prioritising growing their LNG business.
Gas-fired generation is setting demand records in North America where gas is cheapest and losing huge swathes of market share in Europe, where gas costs 3-4 times the US price.
New developments and disclosures regarding the act of sabotage that blew up the NordStream pipelines, including a WSJ report that Ukraine was behind the attack, fuel more speculation about who could be responsible.
This year, Russian gas exports to China will reach their historical maximum, about 40 Bcm.
Egypt’s natural gas production has sunk to a six-year low due to its inability to pay its debts to the oil companies and lack of any new major discoveries since Zohr.
Egypt’s EGAS launched its 2024 international bid round putting on offer 12 blocks, with 10 offshore blocks in the Mediterranean, including one in WestMed/Herodotus.
Shell Egypt is aiming at boosting natural gas production by drilling 11 new wells in the Mediterranean.
Despite the Gaza war, gas flows from Israel to Egypt are set to increase by 200mln cf/d once the 46km Ashdod-Ashkelon offshore pipeline is completed in May next year. This is crucial to Egypt’s beleaguered energy industry.
Dr Charles Ellinas is Senior Fellow at the Global Energy Center, Atlantic Council
X: @CharlesEllinas
