Oil Rig

Chart of the Day: Collapse in Oil Investments May Lead to Much Higher Prices

The EIA (The US Energy Information Administration) estimates that 99.7 million b/d (barrels of Oil per day) of petroleum and liquid fuels were consumed globally in 2020 in the month of November.

They forecast that global consumption of petroleum and liquid fuels will average 96.9 million b/d for all of 2021 months, which is a 5.1 million b/d increase from 2020. We forecast that global consumption of petroleum and liquid fuels will increase by 3.5 million b/d in 2022 to average 100.5 million b/d per month. See the chart below and more here.

World Oil Production 2021

Here is a view of the US Oil production from the EAI in the chart below, and learn more here.

US Oil Production 2021

The US production is less than 10% of global Oil production, but OPEC is about 30% of global Oil production at 30 million b/d – see here. Supply-demand is currently held in line, but supply investments could change in the future.

What are future investments (CapEx) to support Oil production going forward?

A note on CapEx. First off, what are capital expenditures (CapEx)? Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. CapEx is often used to undertake new projects or investments by a company.

The ongoing and precipitous decline in CapEx in the Oil industry suggests production will continue to contract, leaving it well short of future demand. See the chart below and learn more here.

Oil CapX 2021

Regardless of all the challenges and uncertainties, OPEC Member Countries continue to invest in additional upstream capacities. However, their investments are dropping like a stone. Learn more and see below a summary chart.

OPEC Upstream Investment Plans (2017-2021)

There are other factors (such as regulations) that will also lead to less investment in Oil production, especially in the US. The Biden-Harris administration issued a report to increase the price of oil leasing fees on federal lands in the United States by 50% – even while accusing oil companies of artificially increasing prices through illegal and anticompetitive actions.

The sponsor of the Keystone XL crude oil pipeline has canceled the project after Canadian officials failed to persuade President Joe Biden to reverse his cancelation of the presidential border crossing permit by executive order. There are other pipelines on the block – see here.

The primary goal of many of these Oil disinvestment is to raise Oil prices to make more viable the climate change alarmist Green New Deal governmental policies. In one report, gasoline prices under the Green New Deal would reach $13 per gallon.

Then there are stories like this – “Has the EIA massively overestimated the potential of US shale?” Estimates of the future can always be dubious.

What does all this mean?

Brent crude prices will reach $125 per barrel next year and $150 in 2023, as OPEC and other producers won’t be able to crank up production, J.P. Morgan analysts predict. We estimate “true” OPEC spare capacity in 2022 will be about 2 million barrels per day (43%) below consensus estimates of 4.8 million,” write the analysts led by Christyan Malek. See here what the Right Wire Report said about Oil prices in the future.

The bottom line is that due to decreases in Oil production CapEx, and regulations, Oil price shocks are set to be a very likely part of our future. The only thing that could cause a change in this view would be a significant recession that would reduce demand.

See more #chartoftheday posts.

 

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 RWR original article syndication source.

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Written by Tom Williams

Born down on the farm in America's Midwest, my early life was spent climbing the ladder via a long career in information technology. Starting as a technician, and after earning a degree going to night school, I eventually found a place working at ATT Bell Laboratories as a software engineer.

Later moving into management and then a long stint in a major management consulting firm working with major banking, telecommunications, and retail companies. Working in various states in America, I also spent considerable time living and working in several European countries - currently expat in France. As a side career, I was heavily involved in real estate development and an avid futures trader. This experience can give one a unique view of the world.

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