(WCTW) Two Variant Perceptions In The Oil Market Today And Why They Are So Important For Where We Are Headed
We think the consensus is making a big mistake on two key views in the oil market today.
OPEC+ voluntary cuts are creating more confusion than answers. Aside from the Saudis, voluntary cuts are not happening with any of the other producers.
US oil production was understated at the end of 2022. Following a methodology change in mid-2023, EIA has now overstated US oil production. This has created a massive misconception of the implied growth rate of US shale.
We think these two variant perceptions will result in a much tighter-than-expected oil market going into 2025. Consensus is expecting the oil market to be in surplus by 2025 due to OPEC+ unwinding its production cuts, but we completely disagree.
While we are of the view that this year will show a rangebound oil price environment, we see an upside risk for 2025 as consensus overestimates supply. Not only is it making a crucial mistake in assuming this voluntary production cut is real, but it is also using an incorrect baseline for US oil production.