Forward Guidance Paul Sankey: Oil Would Be Below $60 If It Weren’t For Saudi Production Cuts
Feb 21, 2024
In this podcast, Paul Sankey discusses how Saudi production cuts are propping up oil prices, the implications of U.S. oil production growth, the importance of inventory quality in oil companies, and the potential impact of AI on power demand. Sankey also touches on M&A activity in the oil industry, the role of Bitcoin as a hedge, and the challenges faced in navigating power demand growth.
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Oil At A Seasonal Equilibrium
- Paul Sankey sees oil near an equilibrium around $80 Brent driven by Saudi cuts and seasonal refining slowdowns.
- That price generates record cash returns for major oil companies and supports strong shareholder distributions.
Favor Midstream, Avoid Service Stocks
- Avoid service-company exposure because natural gas is oversupplied and service firms need spending to rebound.
- Prefer midstream pipeline companies that benefit from record US production volumes.
Small Margins, Big Price Swings
- Small changes at the margin can swing oil prices dramatically because inventories run low and the market is set at the margin.
- Saudi voluntary cuts of ~1 million b/d have kept prices far above US marginal costs.