Daily Energy Standup Episode #328 – Disparity in Oil Demand Forecasts, New Mexico’s Royalty Rate Standoff, and Market Volatility

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OPEC, IEA at most divided on oil demand since at least 2008

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Michael Tanner: [00:00:14] What’s going on, everybody? Welcome in to the Wednesday, March 13th, 2024 edition of the Daily Energy News Beat stand up. Here are today’s top headlines. First up OPEC, IEA at most divided on oil demand since at least 2008. Pretty crazy statistic. Well we’ll kind of cover where both of those organizations at demand wise. And then we’ll talk about New Mexico halting some oilfield lease sales in standoff over royalty rate in Permian Basin. This is super interesting. I will then quickly cover what’s going on in the oil and gas finance markets. Talk a little bit about the API, crude oil inventory estimate and then wrap up and let you guys get on out of here. As always, I am Michael Tanner rocking a solo show today. Stu has the day off. Without further ado, though, let’s dive right in. [00:01:07][52.4]

Michael Tanner: [00:01:07] Let’s start with OPEC. IEA at most divided point on oil demand since at least 2008. This is an absolutely crazy story here. So top headlines out of Reuters producer OPEC and the IEA or the International Energy Agency. One of my favorite organizations are further apart than they have ever been for at least 16 years when it comes to their demand estimates, specifically on crude oil, the gap between the IEA, which represents all of the industrialized countries, and the OPEC, which is the Organization of Petroleum Exporting Countries, are so far off, it’s about a difference of 1% world oil demand. That basically backs into the IEA thinks we’ll have 1.2 million barrels, per day of demand increase. While in February OPEC decided to say we think it’s going to be 2.25 million barrels per day, that again works out to a 1%, of world demand. Former head of the IEA’s oil markets division, Neil Atkinson. He’s got a strong quote. The IEA has a very strong perception that the energy transition will move ahead at a much faster pace. Both agencies have backed themselves in with a position, which is why they have the enormous gulf in demand forecast. You never like to see the two research companies boxing themselves into a corner. That’s really what you want out of your research facility. It’s unbelievable. The IEA did come out with a statement saying they were not going to comment on other organizations forecast, but, quote, we expect this to continue this year with mobility indicators suggesting that road and air traffic are stabilizing. OPEC doesn’t have any rules against it. They say we have been very steadily steady with our 2023 oil demand forecast. Many other forecasters have started low and then continually revised up their 2020 forecast. That’s, out of OPEC’s Vienna office. OPEC will come and swing for the fences. They could care less. So you know, and again, who are you going to trust? The IEA, who clearly has been shown to have a political agenda. They would love the energy. You know, they would love demand to fall, you know, for a variety of reasons. OPEC, you know, while they also have an interest in demand going up, they’re a little bit more realistic. And I think this is a perfect time. Miss Producer, if you don’t mind showing up, this chart here, OPEC optimistic on its demand for crude oil through 2024. I saw this in an S&P article. Look at the gap between them. Absolutely unbelievable. We got the lower line. That is Where SNP’s got it. The IEA is somewhere here. S&P is even lower. I mean, who knows what they’re doing. OPEC’s on top IEA in the middle. So I mean what does this mean. It means the answer is probably somewhere in the middle. You know, if I were to draw a line, I would draw a dotted line in between because that’s probably where it’s going to end up. I bet both are wrong. It converges somewhere in the middle. The IEA has an incentive to say the energy transition is coming maybe quicker than expected, because they’re getting funding based upon that. OPEC could care less about funding. They’re getting it through oil production. So obviously they’re going to maybe be more in tune with the oil markets. But also they’ll have an incentive to say oil demand will go up. But the answer is always somewhere in between. And and it just goes to show you the the difference going on right now when it really matters. And you gotta trust who you’re getting your data from. Because you look at one, you see one thing, you look at another. You always got to take, you know, they call it a meta analysis. You really got to do a meta analysis, look at all the sources and come to Arco. Where does the majority of the data, where’s that folky of that? You know, where’s the focus point of all that. All the different demand averages. So great article out of Reuters. [00:05:00][233.0]

Michael Tanner: [00:05:01] Let’s go to the next one here. Quickly. New Mexico halts some oil field lease sales in standoff over royalty rate in Permian Basin. The New Mexico State Land Office is going to withhold some lease sales indefinitely on its most promising tracks for oil and gas natural development in the Permian Basin, as it seeks a move in the state legislature to increase its top tier royalty rate. So right now, New Mexico’s top royalty rate is one . They would like to move it up to 25. Kind of. The proponents say that neighboring Texas is already charging 25% on state land amid all of this competition to kind of swoop up whatever’s left of that tier one acreage. And, you know, with the Permian Basin and specifically the Delaware Basin moving over into and having a lot of, of traction in, in, in north or in, excuse me, in New Mexico, it makes sense that they would go for this. Basically what they’re saying is that, if you increase from, from 20 to 25, it’s going to increase annual revenues by, by 50 to 75. You know, this really affects. So I mean I’m all for this just, you know, in Texas, Texas should be collecting as much revenue up oil and gas as possible because they’re funneling it back into the schools. And we need make our schools good. It’s exactly what’s going to happen here in New Mexico. I didn’t even I mean, I knew five New Mexico was 20% just, you know, from being in the business. I never knew why really wise. Because there was an encouragement when the Permian Basin exploded. It was an encouragement to get people to drill on state land and get people over into New Mexico. So they offered a nice rate. The real question is, what’s this going to do to the economics and the operator side? Obviously, they’re holding back some tracks from from being purchased in, in, in any of the state lease sales would be interesting. You know, that you can go to their website and actually see the tracks, you know, the good tracks. I mean, obviously they they’ve got an idea of what’s getting purchased by companies and what’s not. So they’re going to hold back tracks that they feel like companies, you know, this is going to make companies hurt so that we can go ahead and have them lobbied to get those tracks available on the market. Even if that 5% royalty increase takes place, they’re still going to be able to make money. Now, what does this do for fringe only hurts fringe acreage. So, you know, looking at state land, I think a lot of these projects that are including state land in New Mexico are going to be interesting to see how companies look at that. You know, it’s only 5%, but you know, this a it’s pretty interesting. That they were only at 20 and this hasn’t gotten shift. But, you know, this is one time when I’m in favor. Go ahead and increase this rate. Bring it up to what Texas is, and then let’s just see. See how it fits in there. But yeah. So short news day here. [00:07:37][156.5]

Michael Tanner: [00:07:37] We’ll go ahead and quickly cover what’s going on in the in the finance section here guys. S&P 500, they were down about they were up today. About a percent and a half, mainly due, mainly due to the fact that, the dollar index, stayed fairly flat. S&P 500 up about 1.1 percentage point. Nasdaq rips about two, 1.5 percentage points. We saw Bitcoin drop about $1,000. Still above 7070 1000. 25. We saw crude oil fairly choppy today, 7755 mainly what, you know, drove prices today was, you know, we were down early in the day a lot because we had, you know, early in the day we saw the US, Bureau of Labor Statistics drop some not great inflation numbers. We did see, gasoline costs and shelter, in terms of home prices continuing to. Rise. Inflation not quite under control yet. That led to early in the trading day for markets to go down. We did see in the afternoon the API crude oil inventory estimates, which you will hear at 10:00 today. They estimated a 5.5 million barrel drop in the Strategic Petroleum Reserve. Again on Wednesday that number will be verified. So you know the market will swing one way, but that’s big. The forecast was a 400,000 barrel build. So that really pushed prices in the latter half of the trading. Early in the trading session after the close. Up high to its current trading position about 7803 right now. So prices a little bit all over the place. Natural gas continues to fall, $1.70. And, you know, again, the only thing we’re really seeing on the natural gas side was we did cover yesterday that ect. The ECT merger with equity plans. The market still not liking that ECT was down again today about half a percentage point relative to other oil and gas stocks. So you know they’re going to continue to get tend to get hurt for a debt laden deal. So very interesting how how how the street has reacted to that. [00:09:36][118.8]

Michael Tanner: [00:09:37] You know I don’t really have anything else. Guys we’ll make it a quick show today with stew out. He’ll be back, on the fence tomorrow for a final show of the week. Before we get to that weekly recap, we appreciate everybody checking us out. As always, hit the description below for all the links to the timestamps, links to all the articles that we covered, and a survey that we’re running. You can check that out. Energynewsbeat.com/survey. Survey.energynewsbeat.com. You can also check us out dashboard.energy news Beat.com. Again all of this news and analysis was brought to you by the world’s greatest website, Energy Newsbeat.com for Stuart Turley who’s unavailable I’m Michael Tanner. We’ll see you tomorrow folks. [00:09:37][0.0][560.6]

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