Saudi Oil Prince to Drill Every Last Molecule | Oil Markets, Abdulaziz bin Salman

He’s arguably the most powerful man in oil, and made a colossal declaration…

Recently, Saudi Arabian Energy Minister, Prince Abdulaziz bin Salman, vowed to drill “every last molecule” and be the last man standing in the oil world.

It’s a bold statement in a world that has become fascinated with hydrocarbon reduction.

Calling consensus building amongst his OPEC counterparts and Russia a “state secret and art” Abdulaziz has orchestrated an impressive return of oil prices since the 2020 pandemic with prices gaining nearly 40% year to date.

This sent the shares of oil producers rocketing higher, many of which are up 50% or more this year.

Global oil production growth has remained muted, while global oil consumption has continued to improve.

This has led to a tighter oil market which has strengthened prices while stabilizing national and corporate balance sheets.

Designed by Abdulaziz, last year OPEC and Russia implemented a massive 9.7 million barrel per day production cut in an effort to thwart massive declines in oil demand and to support crumbling oil prices.

The production cut worked and upon the initiation of global vaccine rollouts, oil demand increased while oil inventories around the world began to decline.

Today the world is undersupplied by approximately 1 million barrels per day.

It’s a far cry from pandemic demand levels in March-April 2020 when the market was oversupplied by 20 million barrels per day. The chart below shows this dramatic shift in imbalances.

Let’s Look at Oil Inventory…

Inventory levels fall when demand is greater than supply.

Barrels normally held in inventory are released to the market to soak up the excess demand.

Global crude oil inventory levels have declined by over 200 million barrels, and it is forecast that over the next 3-4 months an additional 100 million barrels could leave storage tanks.

You’ll notice in 2022+ inventory levels are forecast to rise and likely peaking between 2.9 and 3 billion barrels.

Inventory levels in this range indicate a normalized market when compared against demand considerations.

This can be shown through the Days of Demand indicator which is the ratio of crude oil inventory levels to crude oil demand.

Peak Demand + Peak Supply = Peak Nonsense.

You will find a lot of extreme sentiment in the oil market these days. It seems that every day there is both “peak demand” and “peak supply” hysteria.

So, who’s right? Probably neither side.

Simply put, if we removed all fossil fuel consumption today, the global economy would crash to a halt. Will we eventually wean ourselves off hydrocarbons?

Absolutely, but it requires slow methodical change, not flipping a light switch. Electric vehicle adoption continues to improve and that is a key driver for future oil consumption.

Though for the next 5-10 years, EVs won’t displace more than a few million barrels per day of demand globally (1-2%).

Don’t Forget: The US Shale Factor.

#oilupdate #saudioil #opec
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