Today’s Energy Update
(Because Energy Fuels Our Lives)
A couple of interesting studies have come across my desk in recent days that merit noting. Taken together, they paint a picture of a domestic shale oil and gas industry that is relatively healthy and will only grow healthier throughout 2019 as it benefits from stronger commodity prices.
Will oil inventories hit a record deficit later this year? – That’s what the partners at the Goehring and Rozencwajg investment firm think. In their March 15 analysis, they estimate that stronger-than-projected global demand for crude, combined with the full implementation of promised export cuts by the OPEC-plus countries will result in a significant drop in global crude inventories over the course of this year.
The report correctly notes the habit of the International Energy Agency (IEA) of underestimating global crude demand growth in its initial annual projections. The IEA has had to revise its initial estimates upwards in seven of the last eight years by an average of about half a million barrels of oil per day (bopd) . The firm assumes this trend will continue for 2019, and that IEA’s estimate of demand growth for 2019 is understated by 500,000 bopd.
The report also criticizes the IEA for its rosy projection that production growth for the non-OPEC countries outside of the U.S and Russia will grow by 120,000 bopd during 2019, a projection Goehring and Rozencwajg believe is “simply not possible. Instead, given the severe recent weakness in this group, we believe this number may actually decline by 300,000 b/d” during 2019. Taken together, the firm believes the IEA is overly-pessimistic in its estimates by a total of 920,000 bopd.
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