Again, a big shout-out to Luke Gromen from FFTT for his analysis. I strongly recommend that anyone interested in looking at more in-depth analysis subscribe to his services.
Two years ago, the International Energy Agency stated unequivocally that fossil fuel demand would peak before the end of this decade. Based on a recent report, they have now backed away from those claims, stating that they are now not so sure.
Given this change, is there an opportunity for investments in these areas to take advantage of this new “norm”?
The world needs more than 100,000,000 barrels of oil per day.
Over the last few years, most of the growth in new supply has come from US Shale. They produce about 11,000,000 barrels a day. However, there is concern that this will not start to wind back as the shale production is declining, which will require more drilling. However, at the current price of around USD $60 per barrel, this price is not high enough to be profitable for the producers.
Therefore, if the price of oil goes up, this will have ramifications on inflation, which in turn will feed into whether the central banks can cut interest rates, which is a very big topic given the large current debt levels that are being held around the globe.
Furthermore, the IEA goes on to say that producers need to spend USD $500 Billion per annum just to stay at the same level of production, given the increased costs in drilling.
https://www.ft.com/content/ef1538bf-2823-4627-96f5-086cd752e258
Given the above, one would expect all things being equal to see a higher oil price going forward unless there is a big decline in demand and quickly.
Written by Rob Coyte
CEO, Shartru Wealth
