A compilation of the outlook for Oil using multiple sourcesBelow I have made a compilation of my findings in what is happening in the oil and energy industry to better understand if investments in oil are wise on a macro level, besides analysing specific stocks. I have added the sources as to show what I base my findings on. It means the links are below the paragraphs but it will make it easier to find the sources I have used with the data and quotes. The core thought of the report is the necessary world oil demand, low oil investments and probable lower oil growth than forecasted by the U.S. EIA according to a report by the earth scientist David Hughes.
The first graph on Ourworldindata website shows how oil is not disappearing anytime soon. It has only increased as a world energy source, as a total number, over the years. Good to put this into perspective which the graph by Ourworldindata. Even with oil losing market share the quantity as a world energy source has still increased over the years. When you look at the other energy sources you see that the total amount of energy source has skyrocket. Oil stands at 31% as a world energy source by the latest data available, until the year 2019.
https://ourworldindata.org/energy-mix This is confirmed by another source, specifically in the UK, using the following quote: “Deirdre Michie, chief executive of OGUK, which represents the UK's offshore oil and gas industry, said: "Right now, we need oil and gas for 73% of our total energy, and so the transition to carbon neutrality will be a huge and complex task.” The warning was given after government statements calling for an end to new oil and gas exploration.
https://www.bbc.com/news/uk-scotland-scotland-business-59717784 Additionally, the energy generated from other sources are lower than expected as can be seen in the Netherlands even after the large budgets for wind and solar energy development. According to the Dutch CBS the energy output from wind and solar energy was 4% of the total energy consumption in the Netherlands for 2020. Where Netherlands has been developing for years, other countries are far more dependant on oil or even coal for their energy consumption. Germany for example, uses oil to cover 35.3% of its primary energy use in 2019, according to cleanenergywire (link can be found below). This makes me believe that fossil fuels for the world energy source may in future decline but won’t disappear anytime soon if we want to have the same energy levels as we had in a full 24/7 pre-covid based economy.
https://www.cbs.nl/en-gb/news/2021/22/11-percent-of-energy-consumption-from-renewable-sources-in-2020 https://www.cleanenergywire.org/factsheets/germanys-dependence-imported-fossil-fuels Warnings Moreover, it looks like the EIA reports in the U.S. on oil and gas for future production and growth have possibly been massively overestimated, according to earth scientist David Hughes. The reasoning can be found in the article below with a reminder of ‘the big short’ mentioned in it. This is important as the US oil production growth is equal to 73.2% of the global increase in production, measured over a decade (2018). Therefore, if this report is correct the effects from policy makers can in future be felt worldwide in oil supply.
https://oilprice.com/Energy/Crude-Oil/Has-The-EIA-Massively-Overestimated-The-Potential-Of-US-Shale.html https://oilprice.com/Energy/Crude-Oil/US-Accounts-For-98-Of-All-Global-Oil-Production-Growth.html In the meantime, multiple countries and institutions have both warned on the impact of stopping investments in fossil fuels and reported bullish forecasts for higher oil prices in the future. These reports come as a result from low investments in the past and planned in future, besides lower production volume coming from ‘cleaner’ energy sources than expected. With this it is good to take another look again to the first graph from Ourworldindata. Something I personally see myself here in the Netherlands where the Dutch government has decided that the massive gas field in Groningen – yes, not oil but gas - one of the biggest in Europe, will decrease its production output.
https://nos.nl/collectie/13880/artikel/2400830-kabinet-geen-gas-uit-groningen-ook-niet-bij-hoge-energieprijzen That the sentiment on oil might be changing can be argued based on multiple countries and institutions providing warnings on oil production and bullish reports on the future oil prices. Below I have gathered some of the more important ones. First is Saudi Arabia warning the world about stopping investments in oil production to speed up the energy transition efforts. Bloomberg has second the warning from Saudi Arabia with its own warning. The article starts right away with the following statement: “The world’s need for affordable oil isn’t going to disappear anytime soon. If supply doesn’t pick up, that won’t bode well for any of us.”
Warnings and bullish reports have come from Russia highlighting the negative effect of the IEA Net Zero Plan. Bullish reports have further come from JP Morgan, followed by Goldman Sachs as I quote: "There's insufficient supply in the face of strong demand," said Damien Courvalin, head of energy research at the investment bank.”
https://www.worldoil.com/news/2021/12/13/saudis-foresee-oil-price-spikes-from-energy-transition-efforts https://www.bloomberg.com/opinion/articles/2021-12-19/saudis-are-right-to-warn-of-a-worrisome-collapse-in-oil-supply https://oilprice.com/Energy/Oil-Prices/Well-See-200-Oil-Russia-OPEC-MinistersBlastIEAs-Net-Zero-Plan.html https://markets.businessinsider.com/news/commodities/oil-price-outlook-brent-crude-150-barrel-opec-jpmorgan-2021-11 https://oilprice.com/Energy/Oil-Prices/Goldman-Sees-Oil-At-100-By-2023.html https://www.cnbc.com/2021/12/17/oil-investing-goldman-sachs-on-energy-outlook-oil-at-100-possible.html Taking a look at oil in the shorter term: The positive outlook for oil in price continues. To show this I have highlighted the following articles. Part of the last sentence from the oilprice.com article: “Investment banks remain overwhelmingly bullish on crude.” It shows that not only oil countries remain bullish on oil prices. Moreover, Bloomberg reported a potential price of $120 USD in the second half of 2022, citing a Rosneft executive. Furthermore, oil reserves are being used by multiple countries. These reserves need to be added later to get through a potential strong/cold long winter. U.S. crude oil reserves are down for 2nd week in a row. Not only the U.S. but other nations, like India, have started to use their reserves.
https://oilprice.com/Energy/Oil-Prices/Sentiment-Shifts-In-Oil-Markets-As-Hedge-Fund-Selling-Spree-Ends.html https://www.hellenicshippingnews.com/opec-under-investment-may-lead-to-120-oil-in-2022-rosneft/ https://www.reuters.com/markets/commodities/oil-extends-gains-easing-omicron-fears-iran-delay-2021-12-07/ https://www.reuters.com/business/energy/india-release-5-mln-bbls-oil-strategic-reserves-coordination-with-other-buyers-2021-11-23/ In overall this can mean a bullish view on oil prices in the near future. This is a consequence from higher oil demand than expected, necessary due to lower than expected returns from other energy sources short term. Moreover, low oil investments for development in the past and future, partly due to decisions from policy makers. Long term this can mean higher oil prices as well due to lower-than-expected oil output. OPEC and OPEC+ have been left out, yet mentioned in the sources, in this overview as the policies may change each month and I want to have a broader and longer overview.