The figures, and numbers posted in this article are back-of-the-envelope calculations. These numbers are not to be completed trusted.
I posted a DD about transglobe energy. If you’re investing in transglobe energy you’re basically just leverage investing (with a margin of safety thanks to how cheap TGA is) in oil.
Let me explain.
When COVID smacked the world in the teeth OPEC decided to cut oil production by around 10%. Otherwise, all the OPEC countries would literally go bust.
2019 oil production was ~101 million barrels per day.
To-date OPEC has still has a 7.5 million barrel cut on oil. Becuase they want to see REAL demand and REAL growth from economies before they increase supply again.
Let’s do some intense math: 101-7.5 = 93.5 million barrels per day of current production.
Hmmmm
What is current consumption?
Look at the pretty circle below. Road uses 35.23% of demand for oil in 2019.
Not sure if you can see this next picture but it’s “August 2020 traffic volume trends” over the years. Obviously during Covid it fell off a cliff as you can see by the blue line below falling off a cliff. It dropped by about 10%.
So I equated that roughly to about 3.5 million barrels of oil per day. This pickup in driving has yet to come back. It has not yet reverted to mean. (average).
Airline industry next up. Althought airline industry only uses like 8 million barrels of oil per day (out of total pre-COVID of 101) it is still significant.
Pretty chart below shows number of flights per day (thousands). As you can see, pre-COVID it dropped a lot, and now is still down 40%. Which equates to a 3.2 million barrels per day missing that has yet to revert to mean.
Let’s summarise:
Road 35% (Still needs to revert to mean)
Electricity 20% (Stable decline in consumption yearly)
Petrochemicals 13.7% (Stable growth in consumption to offset electricty decline)
Non-road 11.47% (Don’t know)
Other-sectors 20.6% (partly airline consumption of 8 million barrels per day before crash)
Current consumption (according to my envelope calculations) =93.62 million barrels
So consumption currently ~ production.
We have OPEC who recently got fucked from COVID now waiting for economies to recover. THEN they will increase supply. Imagine you’re business got reckted, obviously you’re gonna wanna make back your money before your reduce prices).
My conclusion?
I think oil is going to hover here 60-70$ Until demand from airlines and roads pickup. THEN OPEC will increase supply, but I don’t think they will increase supply before.
I think you’ll see OPEC and Russia working together to manipulate the price for some time. Their economies are entirely dependent on oil prices. I think when the economy here opens up you’ll see as much lag in increasing production as they can politically manage driving oil through the roof. They or US operators cannot take another price dip like we saw last year. The only ones still here are survived off 2019 hedges.