The gasoline industry will peak very soon. The oil industrial base is overbuilt. The markets will price that in at some point very soon.
Must say this report vastly understates the speed at which we will leave the oil industry behind.
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Is that a plus or a minus for fuel prices. Over production implies falling prices. Reduced investment implies less capacity increasing prices.
Prices go up. Demand by those who refuse to drive anything but an ICE vehicle will cause prices to spike as production volume goes down over time.
And OPEC will reduce production to support prices. Investments in drilling and refineries etc will slow. Prices will continue to increase. When will gross revenue peak?
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Why would production go down? The OP indicated there is going to be over-capacity. As long as there is demand then the “over producers” will have to compete for the business, lowering prices.
DB2
That report appears to be from a global perspective. The US is getting set up on a different path.
Steve
Sounds like a future positive for US exports.
DB2
I need to go back and take a look at the pipeline MLPs I used to hold. Not so much relating to exports, but national policy aimed at increasing domestic consumption.
Steve
A prediction which, like “fusion reactors are just around the corner” continues to never come true. Someday it will, but that day is not near.
Gas engines are a technology which is well understood, easy to make, and cheaper (on the front end) than alternatives. Although electrics are making some inroads, the numbers are small, relatively, and in other parts of the world where the populace is acquiring the economic ability to drive, gas engines continue to dominate.
In the US alone, “miles driven” has nearly tripled while population has increased only 50% over the past 40 years. In industrializing countries like India and much of Southeast Asia, people are acquiring cars for the first time, and they are overwhelmingly gas powered.
Even in China, where the authoritarian government is pushing electrification with both incentives and penalties, there are more petrol cars on the road than ever before, even as more people acquire more cars and do more driving.
Indeed, consumption of gasoline products is at an all time worldwide high. Growth of demand has tapered somewhat but is still positive, and it appears the only things that might turn it negative would be a worldwide recession (fast acting and severe) or a sudden and dramatic drop in alternate energy options (slower and milder.)
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And, to help things along, an (L&S) a day ago, was holding forth on the importance of driving “gas powered cars”.
Steve
Better take that up with BP.
Producers go out of business due to lack of customers. Ask the buggy whip and horse-drawn carriage makers about their current booming market vs th 1800s market. You may (not?) get an answer.
This was an absolutely terrific book that I read a few months ago. It really shows how the transition from external combustion to internal combustion progressed, and why it progressed.
I highly recommend it.
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That’s a snappy internet answer but completely irrelevant. There isn’t a “lack of customers.” In fact, with every passing week there are more customers, more population, and more miles driven per person.
Gas cars last longer than they ever did, and every new car sold does not mean an older car is taken off the road. The average age of cars on the road continues to increase. More cars, more gas (with an acknowledgment that some gas cars are getting better mileage than ever before, including hybrids, but the point remains the same.) We are not at “peak gas”. We may never be until it all collapses around us.
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OK, but Leap was talking about “very soon” and how the report understated the speed at which we will leave the oil industry. That is our area of disagreement.
DB2
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This is like turning an aircraft carrier. There is plenty of momentum. Just remember XOM’s FCF analysis for intrinsic value has to go out over 10 years. The market is going to get cognizant of the problems between now and next summer. The valuations won’t make any sense.
Consumers make the decision, not the oil companies–and they know it.
Oil companies fund their resource production methods and transport. They meet demand. Demand is going to slacken continually over time.
I do not usually tune into the institutions and become a believer. This time I think they are right. I think the institutions are telling the truth. I do not know but would not be surprised if they are net sellers of patch. If so they need the legal cover of analytical reports telling the public to sell.
How far will oil prices drop?
Citi is one of the most prominent bears among major banks, expecting oil to drop into the $70s range later this year. Citi sees oil trading in the $60s range in 2025. Citi sees lower prices as they expect inventories to build in the fourth quarter of 2024.Jun 22, 2024