USO - Short-Term Energy Outlook And Tight Oil Update January 2024
2024-01-15 19:57:00 ET
Summary
- The EIA’s Short Term Energy Outlook (STEO) was revised lower for both 2023 and 2024 C+C output compared to last month by 522 and 396 kb/d respectively.
- The non-Permian tight oil basins decline more gradually starting in 2031 to reflect an update to my demand expectations, with demand falling below supply in 2035.
- A transition to electric transport would be the reason for the gradually increasing rate that oil intensity decreases.
A guest post by D Coyne
STEO
The EIA’s Short Term Energy Outlook (STEO) was published in early January. The chart below estimates World C+C by using the STEO forecast combined with past data from the EIA on World Output .
The EIA’s Short Term Energy Outlook (STEO) was revised lower for both 2023 and 2024 C+C output compared to last month by 522 and 396 kb/d respectively. World C+C output is expected to decrease in the 4th quarter of 2023 and increase 2024Q1 followed by a decrease in 2024Q2 then an increase and then flat output through the end of 2025. Annual average World C+C output increases by about 502 kb/d in 2023 to 81429 kb/d, then to 81949 kb/d in 2024, and rising to 82321 in 2025 about 679 kb/d below the annual average in the peak year of 2018. The average rate of increase in World C+C output from 2023 to 2025 is about 285 kb/d per year using the OLS trend, but note the small increase from 2022Q4 to 2025Q4 of only 501 kb/d over 3 years, an average annual increase of only 167 kb/d. (See 82050 and 82551 kb/d shown on chart.) Also from 2024Q4 (82637 kb/d) to 2025Q4 (82551 kb/d) the EIA projects a fall in quarterly output of 86 kb/d.
The chart above looks at quarterly World Liquids Supply and Demand from US EIA international Statistics from 1997 to 2023Q3 and then uses the STEO forecast for World Supply and Demand from 2023Q4 to 2025Q4. It is apparent there are significant periods of low supply from 2000 to 2013.
The chart above assumes the STEO Supply and Demand estimates are correct, and also assumes about 140 days of forward supply is held in World stocks at the beginning of 1997. This level was chosen so that in 2022 and 2023 the stock levels would be about 90 days of forward supply. A big drop from almost 150 days of forward supply in 1998 to about 89 days of forward supply in 2025, if the STEO forecast is correct.
Tight Oil
The tight oil scenario above updates all scenarios for a better match to the latest data. The non-Permian tight oil basins decline more gradually starting in 2031 to reflect an update to my demand expectations with demand falling below supply in 2035, this is discussed later in the post. The updated tight oil scenario peaks in July 2024 at 8826 kb/d, about 162 kb/d higher than the October tight oil estimate of 8864 kb/d.
The chart above compares my Permian Basin tight oil estimate with the EIA’s 914 survey of large oil producers (about 90% of total) in Texas and New Mexico, the difference between the estimates is about 1000 kb/d which is roughly the output of the Eagle Ford play over this period. The trends are very similar at annual rates of increase of 561 kb/d for the Permian Basin vs 540 kb/d for the 914 survey data for Texas and New Mexico.
In the chart above, the “Big 4” refers to the largest 4 oil producing states in the US, Texas, New Mexico, North Dakota, and Colorado. The 914 survey data from large oil producers in these 4 states is compared with my estimate for US tight oil output (which uses data from Texas, New Mexico, and North Dakota’s state oil agencies, data from Novi Labs, and data from the EIA’s Petroleum Supply Monthly and the EIA’s tight oil estimate.) As for the Permian Basin, the trends are similar at 629 kb/d for the annual rate of increase for US tight oil vs 605 kb/d for the annual rate of increase for the Big 4 914 survey. The roughly 600 kb/d difference in the level of output may be due to several tight oil plays that are in other states besides the Big 4 such as the Powder River Basin in Wyoming, the Anadarko Basin in Oklahoma, and the Uinta Basin in Utah. There are also small amounts of tight oil produced in the shale gas basins in Pennsylvannia, Ohio, and West Virginia.
Oil Shock Model
The World Oil shock model has been revised in line with the tight oil model presented above, the EIA STEO estimates for 2023 to 2025 are presented and labelled on the chart (81.26, 82.09, and 82.5 Mb/d) these estimates are actually lower than my model for 2023 and 2024. Beyond 2035 demand may be below this supply estimate and oil prices may fall to adjust supply lower to match demand. Clearly it is not possible to predict the future with any accuracy, this is a guess that will evolve as the future unfolds. The assumption is that oil prices remain in the $70-85 per barrel range over the period from 2024 to 2034, higher oil prices might lead to higher output and lower oil prices to lower output.
World Oil Demand
The chart above uses World real GDP in 2017 international dollars ((PPP)) data from the World Bank ( link here ) and refinery throughput data from the Statistical Review of World Energy 2023 to measure World demand for crude plus condensate. Longer term, the oil intensity falls a bit faster at -0.007 per year based on the trend from 2000 to 2022. In the model below for World oil demand, I assume the trend shown in the chart above continues from 2023 to 2026 and then the rate of decrease gradually increases by 0.0001 each year until reaching -0.0066 in 2036 and then holds steady at that rate until 2051. A transition to electric transport would be the reason for the gradually increasing rate that oil intensity decreases. I will remind everyone that is a guess and that higher or lower estimates could be used, my guess is certain to be incorrect. The supply model is from the Oil shock model presented earlier. Spreadsheet with data for demand model at this link .
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Short-Term Energy Outlook And Tight Oil Update, January 2024