Keith is a global oil market expert. My comments are in blue. (Dan Steffens)
Notes below are from Keith Kohl on Energy and Capital on July 10 afternoon
You can’t print barrels, folks.
No matter how hard you want to try, you simply cannot make crude oil materialize out of thin air.
But hey, when in doubt it seems as if the go-to strategy is to fake the data until it cannot be ignored any longer. At least, that’s what the IEA’s standard operating procedure has been for years, until they were finally unable to bear the inaccuracies any longer and confessed their demand data was wrong. < As I have posted here many times, IEA has under-estimated oil demand of many years because the people that sign their paychecks are Climate Change Wackos that hope demand for oil-based products will decline.
Last week, we talked about how cheap oil was living on borrowed time. My longtime readers understand how true this statement is, especially when taking into account the fact that the “market is oversupplied” narrative that has been falsely pushed for years to put downward pressure on oil prices is finally coming to an end.
And you know what?
Now, it’s the U.S. Department of Energy’s turn to come clean.
Ah, but how could that be, dear reader? After all, the prevailing sentiment is that our output will go up forever, right?
Nevermind the fact that the U.S. oil industry has been repeatedly telling us that prices below $70 per barrel was a danger zone for growth. Or that the Dallas Fed sounded another alarm earlier this year when it reported that shale producers — particularly in the Permian Basin — needed WTI prices in the mid-$60s just to break even.
Hearing the media call for $50/bbl oil was maddening.
Today, the madness ends.
Finally, most people out there are just starting to realize that U.S. oil production growth has completely dried up. So far, we topped out at 13.48 million barrels per day last March.
The EIA’s most recent Short-Term Energy Report was an eye-opener for some. For the first time in a long while, the EIA has finally come to terms with the fact that U.S. oil output is heading lower. < Guess what, if you keep reducing the active drilling rig count (not completing a lot more new wells each year), oil production goes down.
In its forecast, the EIA reported that our domestic production will decline to less than 13.3 million barrels per day by the end of the year. It turns out that the lack of drilling activity and cheap oil price environment REALLY WAS too much for the E&P sector to bear.
Personally, I think U.S. output will head even lower under further bearish conditions. At current prices, it’s simply not economically feasible for those Permian Basin drillers — who account for nearly half of all U.S. crude production — to drill their Tier 2 and Tier 3 acreage.
Remember, these tight oil wells have a much sharper initial decline rate, which in the past has meant that more drilling was necessary. More recently, the incredible gains in drilling efficiencies, which my colleague Jason Williams aptly pointed out recently, have been the single catalyst for output growth.
However, it’s not the EIA that we should solely focus on. They’ve made revising previous forecasts into a form of art.
No, it’s the recent reaction to an OPEC+ decision that signals a bullish second-half of the year.
If you feel like you’re living in an episode of the Twilight Zone, you’re not alone.
How many times over the last few weeks and months have oil prices shrugged off wildly bullish catalysts. The latest destruction of Iran’s nuclear infrastructure is a perfect example, with prices surging for a short period before selling off again.
It’s been like that all year, too. Geopolitical chaos that would’ve shot oil into the stratosphere had hardly moved the dial on prices.
Then came OPEC’s announcement a few days ago that it adjusted its production by 548,000 barrels per day. For the record, this is the same as four monthly increments. < The next OPEC+ quota increase (not actual production increase) should be the last. OPEC+ is now calling them "Production Ceilings" and more than half of the cartel countries cannot produce oil up to the increased ceilings.
Any other time, if you told me that the oil market would disregard this news and continue moving higher, I would’ve laughed.
And yet, here we stand today with WTI prices trying to once again break above $70 per barrel.
So what gives?
Every once in a while, we have to bite the bullet and give OPEC credit for putting more barrels on the market. You see, it turns out that the fundamentals are much tighter than the media narrative led people to believe.
Demand isn’t tepid, it’s stronger than expected.
According to them, global demand grew 1.49% year-over-year in 2024, averaging 103.84 million barrels per day. < Saudi Arabia, which has more accurate data than EIA or IEA says that demand for oil will increase 1.2 million bpd in 2025.
Normally this wouldn’t be an issue. However, we’re experiencing healthy demand growth during a time when global production isn’t just flat — it’s falling. Last year, global oil output declined by approximately 770,000 barrels per day, or about 1% year-over-year.
It was the first annual decrease in the world’s oil production since COVID.
This is why OPEC and its allies were confident in raising production. They don’t want oil prices at $100/bbl — they want CONTROL over the market. When U.S. tight oil production was booming, that was an impossibility. < Today, Saudi Arabia controls the global oil price. Guess where they want oil prices to go?
Tick-tock goes the oil clock.
From here on out, there’s only one way the smart money is playing this shift in global oil power.
Keith Kohl
Dan Steffens
Energy Prospectus Group |
