Market Chaos This Week

It is Thursday, August 8, 2024, and I am bringing you up to speed on all the recent news in the oil and gas sector. Here we go with the latest developments.

EIA Increases U.S. Crude Oil Demand Forecast for 2024

The U.S. Energy Information Administration (EIA) has raised its 2024 forecast for U.S. crude oil demand to 20.5 million barrels per day, up from the previous 20.4 million bpd estimate. Despite this, the EIA lowered its Brent price forecast for 2024 and 2025 by $2 per barrel, expecting prices to average $84 and $86 per barrel, respectively. The EIA anticipates a price increase in the second half of 2024 due to a projected decrease in global crude oil inventories by 800,000 bpd. Global consumption for 2024 remains unchanged at 102.9 million bpd, with a slight downward revision for 2025.

Falling Prices Slow U.S. Oil and Gas Production

U.S. oil and gas production is slowing due to lower prices following the initial shock of Russia’s invasion of Ukraine in 2022. In May, production from the Lower 48 states was 11.0 million barrels per day, showing the smallest seasonal increase since 2020. The number of rigs drilling for oil dropped to 479 in July 2024 from 534 a year earlier. U.S. gas production also declined. The dry gas output at 101.3 billion cubic feet per day in May was the largest seasonal drop since 2020. These reductions have opened the door for OPEC+ to potentially increase their market share, though recent price drops indicate worries about a possible economic slowdown. If this slowdown doesn’t occur, OPEC+ could benefit from higher production and prices later in 2024 and 2025.

U.S. Energy Companies Reduce Oil and Gas Rigs Due to Lower Prices

U.S. energy companies have cut the number of active oil and gas rigs for the first time in three weeks, according to Baker Hughes. The total rig count dropped by three to 586, with a 11% decrease compared to last year. The number of oil rigs remained at 482, while natural gas rigs decreased to 98. This reduction is due to lower oil and gas prices, increased labor and equipment costs, and a focus on debt reduction and shareholder returns.

Oil Prices Fall as Inventory Build Eases Supply Concerns

Crude oil prices fell after the American Petroleum Institute reported a slight inventory build of 180,000 barrels for the week ending August 2, ending a five-week decline. This build eased concerns about global supply. Despite the slight increase in oil inventories, larger builds in fuels have raised doubts about demand during the peak consumption season. Geopolitical tensions and supply risks from ongoing Middle Eastern conflicts and Libyan production halts continue to influence market sentiment. You can see the up-to-the-minute numbers here.

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