Oil Markets - The Road to Autonomy

The Current State of the Oil & Gas Markets

Dean Foreman, Chief Economist, American Petroleum Institute (API) joined Grayson Brulte on The Road to Autonomy podcast to discuss the current state of the oil and gas markets.

The conversation begins with Dean discussing the the unprecedented move by the Biden Administration to release 1 million barrels of oil per day for 180 days from the Strategic Petroleum Reserve and the global demand for oil.

The U.S. Energy Administration estimated coming into this year, in December that we were at a global deficit of more than 3 million barrels per day. That’s with global demand outstripping or exceeding the supply or production level globally for oil.

– Dean Foreman

Further putting this into perspective, in February 2022, the U.S. petroleum demand was 21.6 million barrels per day. The highest level of demand since August 2005. A portion of the demand is being driven by freight shipping partly as a result of the increase in online shopping. Another factor driving petroleum demand is COVID-19 tests as they are made from plastic. The molecules for the tests made of plastic start as oil and natural gas.

In February 2022 more then 7 million barrels of oil out of the 21.6 million barrels of U.S. petroleum demand, about a 3rd were used to create petrochemical from a refining process that directly correlates with the global increase in demand for COVID-19 tests, which are made of plastic.

Out of the 21.6 million barrels of U.S. petroleum demand, 4.3 million barrels a day were distillates (diesel). Between plastics and the increase in online shopping, almost 50% of U.S. petroleum demand (February 2022) was driven by consumer behavior.

With petroleum demand increasing, the Keystone XL pipeline could help fill the demand. Dean shares what economic impact it would have on the market if the pipeline came online and heavy crude starting flowing from Western Canada to the United States.

Expanding upon this conversation, Grayson and Dean discuss the current state of the U.S. economy and what the potential economic outlook looks like as the Federal Reserve begins to taper.

As the economy goes, so does demand.

– Dean Foreman

Diving back into the oil markets, Grayson highlights the price of U.S. New York Harbor Jet Fuel which has risen 83% in the last 30 days to $744.32 a barrel (as of April 5, 2022). The price increase is a local issue, due to the lack of regional refining and the fact that jet fuel in the New York region has to be imported.

From a global perspective, the global demand for oil was 100 million barrels per day in Q1 2022. The demand for oil is outpacing market supply by 3.2 million barrels per day.

Demand is continuing to outstrip supply.

– Dean Foreman

Global Oil & Gas drilling activity is down 38% compared with February 2019. With a slowdown in drilling and a growing global demand for oil, Dean discusses the market from an economic standpoint.

From a global perspective you got to have 4 to 6 million barrels per day of new oil just to sustain the production level this year.

– Dean Foreman

The growth is only going to continue as according to the International Energy Agency, 46% of the world’s energy will be produced by oil and natural gas.

Wrapping up the conversation, Dean shares his thoughts on the future of energy.

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Recorded on Friday, April 8, 2022