Energy Report: The Road To Deficit

Oil prices are surging to new 11-month highs as global oil supplies are projected by OPEC+ to be in deficit in 2021. The Energy Report readers know that we have been projecting the same thing as historic cuts in production, a massive pullback in oil and gas investment, and demand that has already recovered to provide levels in China and India will suck down supply. OPEC Plus projects that the oil market is in deficit throughout 2021, peaking at 2.0 million barrels per day in May according to Reuters. That is despite having lowered its forecast for oil demand growth this year to 5.6 million barrels per day (bpd), 300,000 bpd less than OPEC’s most recently released estimate. Oil demand is on track to get back above 100 million barrels later this year and even with the possibility of more oil from Iran and OPEC, we may need to see prices above $65 a barrel to meet that demand.

Pump Jack, Oilfield, Oil, Fuel, Industry, Petroleum

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U.S. oil producers will be hampered by the Biden administration and banks and pension funds will avoid oil and gas investment to be more politically correct, U.S. consumers will be expected to bear the brunt of the coming pain but the market hopes that with the possibility of more stimulus money, they can afford higher gas and heating bills.

That will please the OPEC plus crowd as they will adjourn by video conference for what will be the 14th OPEC and non-OPEC Ministerial Meeting. While the group is not expected to announce any changes to current production plans, I am assuming they will by doing virtual hive fives celebrating the Biden administration moves to help the group maintain market share from the U.S. shale oil producers. The biggest conflict in the group has been how to mage cutting output and raising prices without facing a flood of oil from U.S. shale. Well not to worry OPEC Plus, Joe Biden has your back. He has a plan to build back better and that plan will include using more imports of OPEC oil and gas. Not only will we see an oil deficit, but these policies will also add to the trade deficit. More US dollars going out to OPEC.

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Monica Kingsley 4 weeks ago Contributor's comment

The underinvestments in oil and exploration will come to bite us, and higher oil prices are ahead. I'm not ruling out an oil shock in the mid-decade - surprising, I know...

Phil Flynn 4 weeks ago Author's comment

I agree!

Monica Kingsley 4 weeks ago Contributor's comment

Absolutely... getting little traction and interested, this is an opportunity in the making, targeting positively higher prices this year too. I saw that lovely October XLE buy opportunity :) I think you did too