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Tight Oil Supply and US Production Downgrades Expected to Drive Prices Up and China Growth Concerns
03/12/2024![Tight-Oil-Supply-and-US-Production-Downgrades-Expected-to-Drive-Prices-Up-and-China-Growth-Concerns](https://images2.rextag.com/public/blog/H253_Blog_Tight Oil Supply and US Production Downgrades Expected to Drive Prices Up and China Growth Concerns.png)
- Oil market braces for tighter supply, RBC's Helima Croft forecasts
- Croft announces significant reductions in US oil output projections
- Expect rising crude prices with Brent poised to reach $85
- Bonus part: China aims for a 5% economic growth target in 2024
Crude oil prices are on the verge of a significant rise, as per Helima Croft, a top commodities strategist at RBC Capital Markets. She highlights a looming shift in the oil market's supply-demand dynamics, forecasting a potential slowdown in global crude production. This slowdown might push Brent crude prices to $85 in the latter half of 2024.
"It's not that we're saying that US production is not going to grow. It's just a question about, were the gains that we saw last year due to particular unique circumstances that are not going to be replicated this year," Croft said.
The US, after a standout year of oil production in 2023, is expected to see a slowdown, with growth projections halving from 1 million to 500,000 barrels per day this year, based on insights from the recent International Energy Week. This trend is not unique to the US; other major oil producers, including Guyana, face challenges in maintaining their recent production booms.
Additionally, tensions in the Middle East could further constrain supply, particularly if the conflict involving Israel and Hamas escalates to involve Lebanon, a scenario Helima Croft views as a significant risk given Iran's position in global oil production.
OPEC+ members plan to sustain their production cuts, extending a collective reduction of 2.2 million barrels per day through June.
Brent crude edged up slightly to $82.88 a barrel, while U.S. West Texas Intermediate (WTI) experienced a minor drop to $78.68. This year, Brent has seen an almost 8% increase.
Despite these price movements, Croft tempers expectations of oil hitting $100 a barrel soon. Meanwhile, global oil demand continues to rise, with projections suggesting a peak increase of 1.2 million barrels per day by 2028. This could lead to a market shortage as early as 2025, according to Vicki Hollub, CEO of Occidental.
China's Economic Reforms
Oil prices found their footing after a recent dip, thanks to OPEC+'s commitment to keeping supplies tight. This decision counterbalanced worries about China's economic expansion and global interest rate uncertainties.
China aims for a steady 5% growth in 2024, matching last year's target. However, the absence of significant stimulus measures to boost the economy has left investors wanting more.
Tamas Varga from the brokerage PVM notes that despite the lukewarm reaction to OPEC+'s decision to continue its production cuts, a tightening in the global oil supply is expected. This tightening could help prices recover from any short-term drops, whether they're real or just perceived.
OPEC+ recently decided to keep reducing their oil output by 2.2 million barrels per day into the next quarter, showing a serious commitment to market stability.
Concerns extend beyond China to broader economic uncertainties, partly due to unclear directions on interest rate cuts in the U.S. and elsewhere. The Atlanta Fed President, Raphael Bostic, mentioned that with the economy and job market in good shape, there's no immediate need to lower rates.
Upcoming U.S. inventory reports are also in the spotlight. They're expected to show an increase in crude stocks by about 2.6 million barrels, with a forecasted decline in distillates and gasoline reserves.
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Global Oil Supply and Demand Trends Overview: Insights from Rextag
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Global oil supply and demand saw notable changes in April 2023. Liquids demand declined by 0.7 MMb/d to 99.9 MMb/d, with gains in China and Europe offset by reduced demand in Japan and the Middle East. OPEC 10 production remained stable at 29.5 MMb/d, while Saudi Arabia increased output by 0.3 MMb/d. Non-OPEC production declined slightly, Russian production dropped further, and US shale production remained steady. Combined production in Iran, Venezuela, and Libya remained unchanged. Commercial inventories increased, and OPEC+ implemented production cuts. Economic sentiment remains uncertain amid rising global inflation.
Lycos Energy Inc. Secures Durham Creek Exploration Ltd. & $25M Equity Financing
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Lycos Energy Inc. has solidified a conclusive agreement to procure Durham Creek Exploration Ltd., a prominent heavy oil producer, for a total of CA$22.5 million. Lycos Energy Inc. is delighted to disclose the conclusion of a definitive agreement to acquire Durham Creek Exploration Ltd., an independent, private heavy oil producer. This acquisition, by way of a plan of arrangement, is valued at $22.5 million, comprising $12.5 million in cash and 2.8 million Lycos common shares, each valued at $3.55. The Acquisition will be financed through a $25 million bought deal equity financing.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/297_Blog_Keystone XL Pipeline Controversy and Wildlife Disaster From Trump's Green Light to Biden's Red Light on the 15 Billion Project.jpg)
The pipeline industry in the USA faced and still faces a range of regulatory challenges, including permitting delays, environmental requirements, and public opposition to pipeline projects. In recent years, pipeline projects like the Keystone XL and Dakota Access pipelines had legal and regulatory obstacles that delayed or canceled their construction. Keystone XL Pipeline, proposed by TransCanada in 2008, aimed to transport crude oil from Canada (around Calgary and Edmonton) to refineries on the Gulf Coast (Port Arthur). The project faced opposition from environmental groups and indigenous communities, who argued that it would contribute to climate change and pose a risk to water resources. In 2015, President Obama rejected the project, citing concerns about its environmental impact. However, in 2017, President Trump revived the project, leading to further legal challenges. In June 2021, U.S. President Joe Biden officially canceled the project on his first day in office.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/282_Blog_Renewable Natural Gas How RNG Changes the Industry.jpg)
The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/295_Blog_Renewable Efforts Lag as Global Oil and Gas Demand Continues to Rise.jpg)
Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall. Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends. This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.