 Practical Investment Analysis for the New Energy Economy2025 Crude Market: Tight as an Oil DrumKeith Kohl | Dec 12, 2024 We knew the bearish sentiment that pervaded global oil markets this year could only last so long. Slowly but surely, they’ll all start to realize that the fundamentals are much tighter than most people believe. And with OPEC+ making its last stand by extending its production cuts through the first quarter of 2025 (which is not to mention extending the unwinding of those cuts from 12 months to 18 months), you can understand why we’re seeing crude prices rally back over $70 per barrel yesterday. But it wasn’t OPEC’s decision that moved the dial yesterday, nor was it the extraordinary geopolitical chaos going on in the Middle East after the Assad regime collapsed a couple of days ago. No, dear reader, it was the realization that the supply/demand fundamentals are more bullish for prices. But just how tight are things going to be now that we know OPEC and its allies are keeping their barrels off the market? More importantly, where will the world find that crucial supply growth in 2025? Let’s take a look, shall we?
Microsoft Goes Nuclear Microsoft is building its own nuclear power plants to power its AI ambitions. And for investors, this is a massive opportunity. Because one little-known company will deliver the nuclear fuel for these reactors. And it's set to rake in BILLIONS as a result. Most people have no idea this company even exists. That’s why shares are still cheap. Everyone with skin in the game is a little biased, right? It’s the reason why OPEC’s forecasts are a little too bullish, and the IEA’s predictions a little too bearish. Of course, each has their reasons to sway sentiment to their side. OPEC members generated net oil revenues of $656 billion last year and expected to haul in another $682 billion this year. Greed is as greed does, folks, and there’s no greater motivation for the Saudis to push for higher oil prices than that. On the other end of the spectrum, the International Energy Agency has a vested interest in aggressively pursuing a green energy transition; the more it can tear down the fossil fuel industries, the easier it’ll be to get countries to implement clean energy policies. Just look at EU members like Germany for how things can go horribly wrong. Nobody expects either to blink in their ongoing war to control the narrative, and with it the direction crude prices will head. And here we sit alone in the middle trying to make sense of reality within the oil industry. However, every so often we see a crack in the mirror, with one side flipping to the other and conceding ground. That’s what we saw two days ago when the Energy Information Administration released its latest Short-Term Energy Outlook. In it, the EIA reversed its previous predictions for 2025 and called for global demand to outpace supply by 100,000 barrels per day. So, not only did demand levels exceed supply by roughly 400,000 barrels per day in 2024, but the global oil market will remain in a deficit next year. But there’s a little hitch when it comes to the EIA’s supply projections… one that may cause that supply/demand gap to widen further. I think the EIA is putting a lot of faith in non-OPEC+ supply in 2025 after suggesting that 90% of supply growth next year will come from just a handful of non-OPEC+ countries. Bursting onto the global stage will be Guyana, where the start-up of the Yellowtail project is expected to add 250,000 barrels per day to global supply during the second half of the year and remains one of the few bright spots for boosting future supply. Things are a little stickier here in the U.S., and companies in the Permian are playing a much different game than down in Guyana. You see, gone are the days of the massive Texas gushers that spew hundreds of thousands of barrels of black gold into the air. No, dear reader, the future mantra of the U.S. oil industry is: Pump more with less — fewer rigs, lower costs. It’s a theme we’ve been talking about all year, and the continued gains made in drilling efficiency in the prolific oil regions like the Permian Basin are paramount to growing U.S. output. Make no mistake, that’s what they MUST do to keep more oil flowing. It makes new drilling technology — like the one being utilized by this Permian investment gem — even more valuable to whales like ExxonMobil, who has not only shelled out $60 billion for a premier Permian position via its Pioneer acquisition, but recently doubled-down on its commitment to boost output between now and 2030. |
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