Oil prices have fallen sharply in recent weeks, after fears of falling demand resurfaced. The price of oil closed on Friday at $82, retreating from the peak of $95 it reached after the Hamas attack on Israel.
Curriculum director and oil expert Trond Omdal is not worried about a significant drop in prices from here. He believes that Saudi Arabia has good control over the oil market, and that the country will succeed in stabilizing the price of $80 as a minimum for many years to come.
– If we do not face a financial crisis, my view is that Saudi Arabia will do “whatever it takes” to maintain this minimum, but the problem is actually to the upside, he said during a lecture at the fall BINSUM conference.
Saudi Arabia and Russia recently extended the voluntary cuts during the year. In addition, the two countries, which produce about 20% of global oil production, said they were willing to extend or increase the cuts. Omdal believes they will keep the price within the $80-$100 price range.
Outside of OPEC, the United States is the largest producer by far, with a daily production of crude oil of 13 million barrels including condensates. But rig activity there has declined in recent months, despite somewhat higher oil prices. In addition, the United States will buy crude oil for the Strategic Petroleum Reserve, which Joe Biden has depleted to the lowest level since the 1980s.
Omdal himself expects oil to hit $100 by summer, with the risk that geopolitical events could push it higher in the short term. His general view is that this cycle could become a “ten-year boom” as prices rise.
– In the short term, the oil price could of course go below that, but $80 is probably the lower bound, and then you have $130 as a bullish scenario.
High demand for oil
Saudi Arabia is the only player with particularly spare production capacity so far. The country produces nine million barrels of crude oil out of its official production capacity of 12 million, which Omdahl believes is actually closer to 11 million because it is difficult to maintain 12 million over time.
The Saudi Minister of Energy said that the production capacity It will not be possible to increase it by more than one million barrels To 13 million by 2027, which Omdahl believes is worrying.
Since 2010, the US shale industry has led global production growth, but currently only the mighty Permian field is still thriving. The head of oil company Pioneer – now acquired by Exxon – said at the beginning of 2023 that production from the Permian Basin might You will reach its climax Seven million barrels, down from the previous estimate of eight million. Production today amounts to 5.5 million, according to Amdahl.
Amdahl wonders where production will come from in the long term, whether Saudi or American. With population growth comes increased demand, notes Omdal, who believes it is not realistic for everything to be covered by alternative energy sources.
The end of the oil age has been predicted many times, said Amdahl, who dug up a number of old front pages from The Economist magazine, which pointed to the impending death of the oil industry. One of them was from 2003 entitled “The End of the Oil Age.”
But demand for oil has now reached record high levels – about 102 million barrels per day – according to the International Energy Agency. Demand is expected to be higher next year, but the gap between OPEC and IEA estimates is exceptionally large.
Estimates of when global oil demand will reach its peak, so-called Extreme need, also varies a lot. Amdahl feels that many people are now raising estimates of future oil demand significantly.
- Oil cartel OPEC It revised its estimates for 2045 upward by six million barrels to about 115 million barrels.
- The statistics wing of the US Department of Energy expects that global demand will not reach its peak before 2050.
- The International Energy Agency is now relying on the main scenario of global oil demand reaching its peak “before 2030.”
Omdal himself believes that the year 2050 will be closer to the year 2030. He reminds us that many African and Asian countries suffer from great energy poverty. An example of this is India, which could become a new engine for growth in global energy demand. India plans to build 100 new airports, 55,000 kilometers of highways, and start operating several new coal-fired power plants every month, according to Omdahl.
– In this cycle until 2030, “peak demand” is not a problem. “Peak supply” may become an issue, and then we will see $130-150.
Sold from renewable energy sources
In March 2020, Bensome created an energy fund, as the timing could not have been better, as everything containing oil had completely collapsed on the stock exchange. From the beginning, the return was 330 percent.
During the pandemic years, Omdal invested heavily in “green” stocks such as Vestas and Scatec, but the stake declined significantly before the bubble burst. The fund measures itself against a benchmark index of 70 per cent oil and 30 per cent renewables, but Omdahl itself now owns 98 per cent oil, gas and shipping stocks, while only 2 per cent are pure renewables.
Amdahl says calculating renewable energy quotas is difficult, and he believes it often becomes a question of how much support the authorities will provide. Equinor has requested large sums of money to invest in offshore wind energy outside New York, but has been rebuffed. Meanwhile, wind energy company Ørsted took a $1 billion write-down and collapsed on the stock market.
– A few years ago, there were many people, including famous analysts, who believed that Equinor should become like Ørsted. I saw how it went.
Not only will Omdal stock be negative, he says many green stocks are approaching interesting levels. He also pointed to a group of stocks that he believes provide good exposure to the green transition, but even these stocks get the bulk of their income from the fossil fuel industry:
- Oil services companies Subsea 7 and Aker Solutions, both of which received wind energy allocations with good profit margins.
- Oil and gas production companies Equinor, Shell and Total. The latter requires a 13 percent return for renewable investments, Amdahl noted.
He pointed to Equinor’s own estimates showing that a 30 percent return is expected on oil and gas projects at a real long-term price of $65 per barrel. Meanwhile, renewable energy projects are expected to receive a return of four to eight percent.
Omdal points out that oil companies such as Shell and Equinor are priced at about seven times next year’s earnings, assuming an oil price of US$85, while wind energy companies Ørsted and Vestas are priced at about 14 and 40 times next year’s earnings, respectively.(conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using links that lead directly to our pages. No copying or other use of all or part of the Content may be permitted except with written permission or as permitted by law. For more terms see here.
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