FORECASTS & TRENDS E-LETTER
by Henry Rohlfs
November 28, 2023

IN THIS ISSUE:

1.  OPEC+ Meets Thursday

2.  COP28 Also Convenes Thursday

3.  Biden Administration’s Stance

4.  How This Affects Oil Prices

5.  My Thoughts on Gary Halbert

This is definitely the week for news on fossil fuels production. OPEC+ members meet this week – delayed until this Thursday – to decide policy on oil production into 1Q 2024. Also, the 2023 United Nations Climate Change Conference, or Conference of the Parties of the UNFCCC – more commonly referred to as COP28 – begins Thursday in Dubai. But OPEC+ members are secretly using the conference to seal big oil and gas deals, a clear conflict of interest.

And the big news is the US is now producing more crude oil than ever—13.2 million barrels per day, per the US Energy Information Administration (EIA), topping the pre-Covid peak of 13.1 million. That amount is nearly double the volume from a decade ago, making the US a net exporter of domestic crude.

Oil prices have slumped recently due to robust crude supplies, despite OPEC+ cuts in production and reduced Russian exports. In light of all this, we’ll take a look at the outlook for oil and gas prices into 2024.

OPEC+ Meets Thursday

At its last policy meeting in June, OPEC+ agreed on a broad deal to limit supply into 2024 and Saudi Arabia pledged a voluntary production cut for July of 1 million barrels per day (bpd) that it has since extended to last until the end of 2023. Some analysts, including Energy Aspects, expect Saudi Arabia to keep the voluntary cut through at least the first quarter of 2024.

The problem facing the OPEC+ members is sagging prices, which have dropped by almost 20 percent since late September. Oil has slid to around $80 a barrel for Brent crude from a 2023 high in September near $98. Concern about demand and a possible surplus next year has pressured prices downward, despite support from the OPEC+ cuts and conflict in the Middle East.

Even though OPEC+ accounts for about 40% of global crude production, the US is the world’s largest single oil producer, accounting for 21% of global oil production in 2022. Saudi Arabia is in second place, at 13%. Even though the total number of oil rigs has fallen this year, efficiencies in extracting oil in the Permian Basin have created a surplus supply, making the US a net exporter of oil.

US crude oil exports is at a current level of 4.786 Mbpd, down from 4.889 Mbpd last week and up from 3.862 Mbpd one year ago. This is a change of -2.11% from last week and 23.93% from one year ago.

COP28 Also Convenes Thursday

The Conference of the Parties of the UNFCCC, or COP28, begins Thursday in Expo City, Dubai. The two-week summit will be the first opportunity for nearly 200 countries to take stock of how they’re meeting (or not meeting) their emissions goals set forth in the 2015 Paris Agreement. The UN released a report in September showing most countries are falling short of their commitments.

The European Union, India and a group of negotiators from African nations, dubbed the African Group, plan to push for an agreed “phaseout” of fossil fuels. They along with António Guterres, secretary general of the UN, believe developed nations should reach net zero carbon emissions by 2040. Guterres has called fossil fuel production the “poisonous root” of the climate crisis that should be dismantled. “COP28 must send a clear signal that the fossil fuel age is out of gas, that its end is inevitable,” he said.

The African Group has also called for rich nations to agree to give more money to developing countries to help them tackle and adapt to climate change and address the loss and damage it causes.

The group told the UN it wanted COP28 to agree that rich nations would provide by 2030 $200-400 billion a year for loss and damage and $400 billion a year for adapting to climate change on top of funding to reduce emissions.

Of course, we all know “rich nations” means the US with little help from other developed countries.

The real rub is COP28 president Sultan Al Jaber is also the head of the United Arab Emirates Abu Dhabi National Oil Company. In leaked documents seen by the Centre for Climate Reporting and the BBC, the UAE plans to use its role as host of the climate talks as an opportunity to strike oil and gas deals. This is hypocrisy at its finest.

Biden Administration’s Stance

The US delegation to the COP28 summit – President Biden is not expected to attend this year – has indicated it would support agreement language that calls for the phase out of fossil fuels. Officials led by John Kerry, the US climate envoy, admit the exact phrasing may have to be “creative” to gain the consensus of nearly 200 countries, which include other major oil producers such as Russia and Saudi Arabia.

In April 2021, the Biden administration made clear their comprehensive plan to “reach 100 percent carbon pollution-free electricity by 2035… leveraging the carbon pollution-free energy potential of power plants retrofitted with carbon capture and existing nuclear.” Despite the administration’s aggressive move towards 100% use of renewable energy sources, the US and other industrialized nations will find it difficult to eliminate fossil fuel use to reach current climate goals.

The American public understands this fact. In a recent Pew Research poll, just 31% of respondents say they are ready to phase out the use of oil, coal and natural gas completely. A much larger share (68%) say the US should continue to use fossil fuels, alongside renewables, as part of the mix of energy sources the country relies on.

The roughly two-thirds of Americans who support using a mix of renewables and fossil fuels are closely divided over whether the US should ever stop using oil, coal and natural gas: 32% of Americans favor a mix of sources now but think the US should eventually stop using fossil fuel energy sources, while 35% favor using a mix of sources now and say the US should never stop using oil, coal and natural gas.

How This Affects Oil Prices

The US Energy Information Administration (EIA), the statistical and analytical arm of the Department of Energy,  forecasts global liquid fuels production with increase by 1.0 Mbpd in 2024. Projected OPEC+ cuts in production will offset production growth from non-OPEC countries to roughly maintain balance in the global oil market. Further conflict between Israel and Hamas could fuel uncertainty in the Middle East, which would put upward pressure on crude oil prices.

The bottom line is EIA forecasts world supplies of petroleum will mostly match demands in 2024. Brent crude prices will see a slight increase from nearly $90 per barrel in 4Q 2023 to an average of $93 per barrel in 2024.

But how does all this affect your pocketbook? We have started to see some relief in prices at the pump. The EIA reports that on November 20, 2023, the retail price of regular gasoline averaged $3.20 per gallon, 10% less than a year ago.

Despite upward pressure on crude oil prices during 2024, EIA estimates the price to consumers for fuel will remain steady. They expect that the higher crude oil prices will incentivize operators to produce more oil and natural gas in US producing regions, offsetting crude oil price increases.

My Thoughts on Gary Halbert

As you can imagine, all of us at Halbert Wealth Management are still putting Gary’s passing in perspective. Last week the staff and I took a few moments to share some of our memories of him. Some were funny, like his favorite office attire was a track suit (“I think he has a closet full of them.”). Others made us scratch our heads at how he could be very picky (“Is it spelled ‘website’ or ‘web site’? Yes it matters!”).

But my memories of Gary in the 25 years I’ve worked with him can be summed up in two words: honesty and integrity. In everything he did both personally and professionally, he spoke the truth and was true to his beliefs – even if it potentially meant losing clients.

We are committed to continue Gary’s legacy of honesty and integrity here at HWM and look forward to serving our clients for years to come.

All the best,

Henry Rohlfs

 

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