Fundamentals today support an oil price of US$100 WTI... "Despite lingering worries of a recession and the potential negative impact on oil demand, we believe energy investors are positioned for further gains heading into year-end and in 2023.
The largest release from strategic stockpiles in history is set to come to an end in just over two months. This coincides with an EU embargo on Russian oil imports and the use of EU tankers to transport Russian crude in early December, potentially impacting Russian production by up to 1MM Bbl/d. Even with the massive SPR release and ongoing Chinese COVID-zero policies which have impacted oil demand by about 0.5MM Bbl/d, global inventories have continued to fall throughout this year. What happens in a few months’ time when SPR releases end, Russian production finally gets impacted by sanctions, European gas-to-oil fuel switching kicks in and Chinese demand eventually normalizes due to COVID-zero policy easing?
The tenets of our multi-year oil bull market thesis remain in place. Oil demand remains largely unaffected by a slowing economy and will grow for at least the next 10 years. U.S. shale production, constrained by the need to prioritize share buybacks and dividends over growth, has disappointed this year and may be close to peaking. OPEC has largely exhausted its spare capacity and the global supermajors face a decade of stagnation owing to eco-wokeness.
We believe that fundamentals today support an oil price of US$100 West Texas Intermediate. West Texas Intermediate and oil will trade at a “higher” price, roughly US$100-$120+/bbl, for the next six or more years.
Energy companies are nearly debt-free, gushing free cash flow, pledging low-to-no growth and are set to return 20 per cent-plus to shareholders in the form of share buybacks and variable dividends in 2023, while trading near generational low valuations. We remain bullish."