Dean Foreman, Chief Economist, Texas Oil and Gas Association joined Grayson Brulte on The Road to Autonomy podcast to discuss his 2024 outlook for the oil & natural gas markets.
The conversation begins with Dean sharing his outlook for the oil and natural gas markets.
The outlook for oil and natural gas looks bright. – Dean Foreman
Last year, the world set a new record high for oil demand of 101 million barrels per day. As we begin 2024, attention is now turning to geopolitics and global economic concerns. In Argentina, Javier Milei was sworn in as President on December 10th in a referendum on the economy with aspirations to rebuild the economy and lower inflation by unleashing economic growth.
With economic and political reforms, Argentina has the ability to become an exporter of oil from the Vaca Muerta shale formation. It has been estimated that the Vaca Muerta formation has the ability to produce more than 1 million barrels of oil per day by 2030.
Argentina because it has shale oil, the Vaca Muerta formation in Neuquén. It’s like the Marcellus in the United States, expect it’s much deeper and super high quality rock. They have the potential to really flip and become an exporter much like the United States. But they haven’t had the business climate to be able to support from a macro perspective companies with predictability trusting to go in and invest a lot in the ground. – Dean Foreman
If the business climate changes, it will be interesting to watch and see what multi-national companies begin to invest in the Vaca Muerta formation. In the United States, economists are projecting a soft landing for the economy. If indeed a soft landing is achieved, more investments are going to be needed to bring the amounts of oil and natural gas to the market that are needed to sustain growth.
A portion of economic growth can be attributed to tourism demand, as Bloomberg is reporting that 2024 will be a record-setting year for travel. The International Air Transport Association is projecting that 4.7 billion individuals globally will board planes in 2024, generating $964 billion in airfare revenue. The cruise ship industry is also seeing growth as it is estimated that 35.7 million passengers will board a cruise ship in 2024, up from 31.5 million in 2023.
If the consumer trend of opting experiences over purchasing goods continues, there could be an uptick in global oil demand. With the Federal Funds Rate at 5.53%, one has to question how long consumers will continue to spend on travel until they feel the weight of the high interest rate environment. If consumers cut back on travel, what is the impact on oil and will diesel demand offset the potential weakness in gasoline? Grayson and Dean discuss the potential scenarios and what the outcome could look like.
One of the biggest uncertainties coming into this year, from a household and a corporate perspective is the delayed impact of the pent up effect of having raised interest rates so much, so fast. – Dean Foreman
Another trend to watch is the re-emergence of hybrid sales in the U.S. In 2023, U.S. individuals purchased over 1 million hybrids, up 76% year-over-year. It’s a clear signal that consumers are still willing to purchase vehicles that have an internal combustion engine. Whether this is being driven by a pricing decision or the simple fact that consumers want reliability and consistency has yet to be determined. What has been determined is that there is clearly a trend emerging.
A tree that is powering Texas to produce 5.7 million barrels of oil per day, its highest level since 1981. In 2023, Texas accounted for 54.7% of U.S. drilling, it’s highest level since 2019.
In Q3 2023, the Permian Basin set a new production record of 10 million barrels per day of oil equivalent. Today, the Permian Basin accounts for 27% of the total U.S. oil and natural gas production.
It has the ability to continue to expand, again because of the quality of resources as well as the ability to get pipelines without dealing with the morass of many of the federal energy regulatory commission, interstate pipeline regulations.
With Texas’ nimble intrastate pipeline system, it has the unique ability to attract capital and respond to upstream production. That’s why the Permian Basin has really stood out versus anywhere else in the country. – Dean Foreman
Wrapping up the conversation, Dean shares his insights on what to watch in the oil and natural gas markets over the next quarter.
Recorded on Thursday, January 4, 2024
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