Russian oil supply and recession risk the two key opposing forces as oil prices remain pinned above $100.
Oil balances remain tight and prices are comfortably pinned above $100 with risks to the upside, according to Enverus Intelligence Research’s latest PetroLogic report, Supply Constraints Dominate. In it, analysts outline their oil and gas fundamental view and price outlook for the near-to-medium term. EIR is a subsidiary of Enverus, the leading global energy data analytics and SaaS technology company.
“Despite signs of a slowing global economy, U.S. oil demand has yet to respond to higher prices as it nears pre-pandemic levels. Similarly in Asia, India’s recourse to extra discounted Russian oil has steadied consumption while we expect China to make a strong recovery in the second half of the year after COVID-19-related lockdowns.” said Al Salazar, lead report author and senior vice president of Enverus Intelligence Research.
“The Freeport outage cut a cumulative ~24 Bcf of feed gas demand as of June 20, loosening U.S. gas balances and helping inventories recover around half of the deficit to the 5-year average compared to our previous outlook. On the production side, gas out of the Haynesville is expected to grow about 2.2 Bcf/d E/E in 2022 and about another 0.3 Bcf/d E/E in 2023 as takeaway capacity out of the play becomes constrained,” he said.
Bill Farren-Price, co-author of the report, noted that OPEC-10 oil production had fallen back in May with Nigeria and Iraq output declining and more than offsetting gains in Saudi Arabia and the UAE. “President Joe Biden’s planned July visit to Saudi Arabia will set expectations for supply coordination later in the year,” he said.
Key takeaways from the report:
- For 2023, EIR forecasts global oil demand growth of ~1.6 MMbbl/d Y/Y, ~0.6 MMbbl/d lower than the IEA initial forecast.
- In May, India became the second-largest importer of crude oil from Russia. The benefit of discounted Russian oil combined with the removal of fuel tax for Indian consumers has produced a gasoline price of ~$4.73/gallon, lower than North America and supportive of steady demand.
- Russian production rebounded 150 Mbbl/d in May from April at 9.3 MMbbl/d, reflecting success in diverting cargoes from Europe to India and China, although that challenge is set to become steeper as sanctions are implemented and insurance bans hit Russian and Russia-chartered vessels.
- On gas, the Freeport LNG outage compounded tightness in Europe after Gazprom cut gas supply 40% to Germany via Nord Stream 1 and to Italy by 15%, making it more difficult for European countries to achieve their new 80% storage target by November.
- Production growth from key gas plays in the Northeast such as the Marcellus and Utica is expected to be flat in 2022 and 2023 as incremental production continues to rub up against takeaway constraints.
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About Enverus Intelligence Research
Enverus Intelligence Research, Inc. is a subsidiary of Enverus and publishes energy-sector research that focuses on the oil and natural gas industries and broader energy topics including publicly traded and privately held oil, gas, midstream and other energy industry companies, basin studies (including characteristics, activity, infrastructure, etc.), commodity pricing forecasts, global macroeconomics and geopolitical matters. Enverus Intelligence Research, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser.