Summary

Mike’s focus in the conference call centered on constructive oil balance data and OPEC’s tight market policy. He addressed questions about whether a possible return of Iranian crude derails the bullish outlook and he included an analysis and outlook for energy equities.

Mike noted that while there is a significant body of data supporting prospects for the world economy normalizing, but that the recovery in global oil demand hit a couple of speed bumps during May based on preliminary estimates he published for two key emerging market countries and his analysis of oil inventories. Part of the discussion touched on the previous week’s OPEC meeting with Mike noting that the outcome was perfectly consistent with its tight market policy. He noted that OPEC has held steady on its policy of restraining output to work down oil inventories and that it did not “take the bait” from urgings to raise output because of evident delays in reviving the Iran nuke deal.  As to the global oil balance, Mike discussed the key moving parts and emphasized a critical tenet of his bullish medium-term outlook, namely that non-OPEC supply will not see a rebound that is commensurate with recovery and future growth of demand.

A section of his update tackled the US shale oil outlook. He dismissed the notion of US production surging and he noted that US shale was not going to be the world’s solution for oil supply problem as most purported. He discussed Russia and a finding of its oil ministry that the country’s production was unlikely to be able to reach 2019 levels. For context he added that Russia and the US account for roughly 40% of total non-OPEC production.

Mike discussed the fact that oil prices have no element of “risk premium” despite a plethora of supply side issues which includes the recent cyberattack on the Colonial Pipelines. Attacks over the past two years on Saudi Arabia oil infrastructure was discussed including the “ultimate black swan” even of Abqaiq.

Mike discussed his forecast for oil prices to “rise meaningfully” from the current $70/barrel level noting that the Saudi budget needs prices north of $90 to balance. With regards to energy equities, energy stocks have outperformed all broad market indexes. He noted that we were still in “early innings” on the equity (and oil price) rally and believes we are in a multi-year up-cycle which he believes will liken the 2003-2008 period.

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