USOI - STEO And Tight Oil Update September 2023
2023-09-27 05:30:00 ET
Summary
- The EIA's Short Term Energy Outlook (STEO) predicts a decrease in World C+C output in Q3 2023, followed by an increase over the next five quarters.
- World petroleum stocks tend to rise in the long term to meet increasing consumption, with stocks at a balanced level at the beginning of 2022, 2023, and 2024.
- OPEC's supply and demand estimates differ from the EIA's, resulting in different stock levels, with OPEC suggesting a significant oversupply in 2022 and 2023 and a shortage by 202.
The EIA’s Short Term Energy Outlook (STEO) was published in early September. 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 higher in September compared to August. World C+C output is expected to decrease in the third quarter of 2023 and then increase over the next five quarters. Annual average World C+C output increases by about 1.2 Mb/d in 2023 to 82.2 Mb/d and then to 83.7 Mb/d in 2024, about 700 kb/d above the centered 12-month average peak in 2018. This month’s World C+C estimates are about 500 kb/d higher than last month for 2023 and 700 kb/d higher for 2024 due to the revisions in the STEO forecast this month.
The chart above assumes World Petroleum Stocks at the end of 2014 were high enough to supply 90 days of world average petroleum consumption in 2015. Total petroleum stocks tend to rise over the long term because average petroleum consumption tends to increase over the long run. In order to maintain roughly a 90-day stock, the absolute level of petroleum stocks must increase. The days of forward supply (DOS) on the right vertical axis is the better measure of petroleum stocks. Based on the EIA’s supply and demand estimates, at the beginning of 2018, 2019, and 2020, petroleum stocks were relatively low (less than 90 days of forward consumption), and at the beginning of 2022, 2023, and 2024, the stocks were at a balanced level (close to 90 days of supply).
OPEC has very different supply and demand estimates for the world than the EIA. This results in the stock levels looking very different, with the OPEC estimates suggesting a balanced oil market at the beginning of 2018, 2019, and 2020 with close to 90 days of supply each year. At the start of 2022 and 2023, the OPEC estimates suggest a significant oversupply, with stocks at 97 and 96 Days of forward supply in each of those years. High world demand assumptions by OPEC result in a significant shortage by the beginning of 2025, at only 86 days of supply.
The chart above takes the average of the STEO and MOMR supply and demand estimates. By this estimate, the world stock levels look fairly balanced except at the beginning of 2021, there was a slight oversupply at the beginning of 2016 and 2017, with DOS at about 93 to 94 days, a slight under supply from 2018 to 2020 (start of year), then oversupply in 2022 and 2023 and a sight undersupply (stocks under 90 days of supply) at the start of 2024 and 2025. The lack of transparency in the level of world petroleum stocks is one of many reasons for oil market volatility.
The chart above has not changed from last month except for the inclusion of the new STEO estimates for 2023 and 2024 on the chart based on the September STEO.
The US tight oil model above is unchanged from last month. Annual average US tight oil output peaks in 2027 at about 9600 kb/d.
The chart above shows the annual rate of increase in US and Permian basin tight oil output from August 2021 to July 2023, over this period almost all of the increase in US tight oil output came from the Permian basin.
Two alternative estimates for tight oil are compared with the official EIA tight oil estimate in the chart above. The first uses the recent Drilling Productivity Report (DPR) and takes the difference between the DPR and official estimates to find the conventional oil produced in the DPR counties. Over the period from October 2020 to September 2022, conventional output was relatively stable at an average of 759 kb/d. We assume conventional output remains relatively stable at this level from October 2022 to October 2023 to create our estimate by subtracting 759 kb/d from the US DPR estimate for all regions; this is labeled DPR tight only. From March 2021 to September 2022, this estimate follows the official estimate closely and then diverges.
For the other estimate, I use L48 excluding GOM from the Petroleum Supply Monthly ((PSM)) and the EIA STEO after June 2023 and subtract tight oil from this estimate to find all L48 excl. GOM conventional oil over the period of interest. In this case, I take the average conventional L48 onshore output from Sept. 2020 to August 2022, which is 1776 kb/d and this is subtracted from the L48 excl GOM PSM estimate to estimate tight oil output, this is labeled L48 excl GOM PSM estimate (but perhaps “tight estimate” would have been clearer). Note that as before, the estimate follows the official estimate quite well from March 2021 to September 2022 and then diverges. In July 2023, the difference between the largest and smallest estimate is about 250 kb/d, it will be interesting to see if the official estimate is revised in the future, it is possible that the assumption that conventional output is relatively stable is incorrect for the tight oil regions.
The chart above compares the tight oil estimate using the PSM and STEO data for L48 excl. GOM with my tight oil scenario (DC model), the model is likely to be wrong as it is just a guess, and the estimate may also be revised in the future by the EIA.
The only revision to this chart from last month is to update the EIA, data to the most recent official estimate, the models are unchanged.
This chart shows why I think that conventional output has been relatively stable from about June 2020 to June 2022, it is not clear why there is such a difference between the tight oil-producing states (with counties represented in the DPR spreadsheet) and those states with no tight oil production over the June 2022 to July 2023 period. One area shows a significant increase in conventional output, while the non-tight oil states show a slight decrease in output.
This chart divides the DPR region's conventional oil (red dots in previous chart) into two parts: New Mexico and Texas conventional (found by subtracting Permian and Eagle Ford official tight oil from New Mexico and Texas PSM C + C output) and the rest of DPR states conventional, in this chart, things seem much less stable especially in the “rest of” the DPR states, unclear if this is real or just bad data.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
STEO And Tight Oil Update, September 2023