Crude Realities: Reflecting on 2023’s Record Oil Production, Wall Street Moves, and China’s Unconventional Ethanol Play
New Year…..same shizzle? Lil bit…not xactly. When the US Shale boom first ignited in the last decade, production growth was driving the bus and capital discipline was a big joke. Fast forward to today. The year 2023 saw the U.S. hit a record crude oil production level of over 13.2 million barrels per day—more than any other country in history. Moreover, the U.S. oil output overwhelmingly exceeded earlier forecasts and grew at a much faster pace in 2023, offsetting much of the OPEC+ efforts to push up prices by coordinated supply reductions. Having said that, this growth is being attained under the umbrella of high hurdle rates and restrained capital spending. The efficiency with which this growth profile has asserted itself is really quite remarkable. While the 2024 prediction for production growth is somewhat muted, the tortoise will tell you that slow and steady wins the race. The price of Brent crude oil averaged $83 per barrel in 2023, down from $101/barrel in 2022. As long as supply and prices stay in this zip code, the contango has a decent chance of reasserting itself. If you want to read those tea leaves, The Tank Tiger can show you storage right now that could be extremely valuable in the future. The price of global crude oil fell last week, with WTI finishing at $72.25 and Brent at $77.82.
Turning to Wall Street, the biggest release on the economic calendar will be the U.S. inflation report on Thursday, with great expectations of easing of monetary policy to follow. By the way, the delinquency rates on business loans are near-historic lows and so are delinquency rates on consumer loans and the household debt service payments as a percent of disposable personal income. So while it’s true we’re carrying more debt, we also have a lot more money as coverage for that debt.
Another chapter of Ripley’s Believe It or Not? News out of China reports that a facility there has begun testing production of ethanol through the use of coal, rather than using crops such as corn or sugar cane to make the fuel. The plant has an annual production capacity of 600,000 metric tons, and is said to be the world’s largest ethanol-producing plant. Sooooo…is this renewable fuel or not? I’m so confused. Chinese officials said the goal is to use the country’s abundant coal resources, rather than vital food sources, to make ethanol while also reducing China’s need to import the fuel.
Quite the excitement at the NRG. Not only did Houston get to host the CFP Natty last night (congrats to Michigan), the Texans will have a home playoff game this weekend. What could be better than that for H-town? Well, keep your eyes peeled for an invitation from The Tank Tiger to a pre-AFPM Happy Hour to be held right in Houston in March. Just walking in the rain – Goin’ back to Houston, Houston, Houston.
