Daily Energy Report
Call on OPEC and OPEC cuts, global crude shipments slowing, Asian nations build gas reserves, Biden proposes oil/gas fee increase, India to trade electricity with SE Asia, and more
Chart of the Day: The oil market in the second half of 2023 and in 2024
Figure (1) above shows the call on OPEC and inventory change as estimated by OPEC, the IEA, and EIA. The higher the number, the more bullish. To illustrate: the brown line is OPEC's estimates of what OPEC should produce in addition to what will be drawn from inventories. It is the difference between OPEC estimated demand and its estimates of non-OPEC production and OPEC NGLs (OPEC NGLs are not included in the quota. The same thing for IEA and EIA estimates.
We added the red line, which is OPEC’s actual production in the first two quarters of the year, and our estimate of its production in the third quarter.
EOA’s Main Takeaway
OPEC’s estimates are the most bullish and the EIA’s are the most bearish. However, OPEC estimates are questionable since actual OPEC production is way lower.
Based on US EIA estimates, OPEC should maintain the cuts and Saudi Arabia should maintain its voluntary cut to the end of 2024 if the Saudis want to see a decline in inventories. The difference between current OPEC production and EIA estimates if OPEC maintains production is the decline in inventories.
What if OPEC and the IEA are correct? In this case, the decline in inventories is so large that OPEC has to increase production and the voluntary cuts will be eliminated first. If the market remains tight, then OPEC might end up increasing production.
The bottom line here is this: which forecast is the most accurate?
Story of the Day
Bloomberg: Rishi Sunak Full of Wrong Kind of Wind
Columnist Javier Blas says despite Europe's urgent need for renewable energy amidst an energy crisis and climate change concerns, wind turbine manufacturers like Vestas Wind Systems A/S are struggling with a significant decline in orders. In Q3, Vestas didn't receive any new orders for offshore turbines, and orders for onshore turbines dropped nearly 50% from a year earlier. Even including smaller onshore turbines, European orders were down 36% in Q3 compared to a year ago. Year-to-date, European countries have ordered equipment capable of producing less than 8 GW of electricity, far below the 39 GW required annually to reach 2030 green targets. The drop in orders is attributed to several factors including British politics, where a de facto ban on new onshore wind turbines is a contentious issue, "not-in-my-backyard" attitudes delaying projects across Europe, slow permissions, and windfall taxes reducing investment incentives. Uncertainty around further regulatory changes is also feared by investors.
EOA’s Main Takeaway
In addition to all the reasons mentioned, are we reaching a saturation level where renewable energy is competing with itself in providing electricity? Have the costs increased to levels where these projects are no longer attractive? We predicted this decline last year when we stated that the increased spending on renewables as a result of the energy crisis was not an “addition.” Governments and energy companies expedited projects that should be done in 2023 and 2024. They just moved the investment and the purchases forward. As a result, we will see a large decline in investment and activities in the near term.