The pivotal role of renewable energy in powering the green transition and decarbonizing economies has been in the limelight for several years. In contrast, the significance of oil, and to a lesser extent gas, is frequently overshadowed. As nations endeavor to distance themselves from fossil fuels, it’s vital to remember that oil continues to function as an integral transition fuel. It not only forms the backbone of plastic and petrochemical manufacturing but also generates substantial revenue streams that can be redirected toward the renovation of infrastructure and the promotion of more sustainable initiatives. Essentially, the ingrained strengths of the oil and gas industry can be harnessed to accelerate the development of novel energy solutions.

This article delves into the complexities of the oil market, casting a discerning eye on the interplay of supply and demand. Our objective is to identify and comprehend the key drivers influencing this dynamic sector, leading to informed projections of future trends.

Overview of the Oil Market

Global oil market dynamics continue to be defined by a complex interplay of economic trends, geopolitical events, and energy policy decisions. We observe an increasingly multifaceted environment, characterized by robust demand growth for automotive and air travel, slowdown in China’s economy, war in Ukraine, OPEC+ output cuts, and US GDP growth.

Demand Side Analysis

The continued growth in the demand for automotive, alongside the resurgence in international passenger travel demand, present significant bullish indicators for oil prices. According to IATA, global traffic has rebounded to 90.5% of pre-Covid levels with a marked upswing in both domestic and international traffic, hinting at a persistent surge in fuel consumption in the coming quarters.

Furthermore, the demand for automobiles persists at a strong level. Even in the realm of electric vehicle production, materials such as plastics, lubricants, adhesives, many of which contain petroleum-based components, are commonly utilized. This continued reliance on petroleum products serves as a positive driver for oil prices.

Demand for Automotives

Conversely, the economic slowdown in China, the second-largest consumer of oil globally, imparts bearish pressure on oil prices. China’s GDP growth of just 0.8% quarter-on-quarter from April to June marks a significant deceleration from the previous quarter. This slowing demand from China may be somewhat offset by robust activity in the US, given its standing as the world’s top oil consumer. The buoyant US job market and declining inflation, in tandem with a possible pivot towards a less hawkish monetary policy, could bolster oil demand further.

US Economic Outlook:

US GDP growth continues to be a vital factor influencing global oil demand. Strong economic performance bodes well for oil demand, translating into upward price pressures. However, any negative economic events could pose downside risks to the outlook.

In addition, the US will have at some point to replenish oil reserves, a part of which it has used recently. The Biden administration has already initiated the long-term task of replenishing the Strategic Petroleum Reserve (SPR), having already purchased 6.3 million barrels of oil with plans to acquire an additional six million by August. Yet, these 12.3 million barrels represent merely a fraction of the reserve’s total, which held 346.8 million barrels as of July 7, reflecting a decrease of 291.3 million since Biden assumed office in January 2021. This is the lowest quantity since August 1983. The replenishment process faces logistical and economic hurdles, including maintenance of the SPR and a strategy to purchase oil when prices range from $67 to $72 a barrel. The Energy Department reports an average purchase price of $72.67 per barrel for the oil bought so far, significantly below last year’s average selling price of $95 per barrel.

Supply Side Analysis

The supply scenario offers a more nuanced outlook. OPEC+, the group of oil-producing countries, has agreed to extend output cuts into next year amid falling prices and a looming supply glut. The cartel has reportedly agreed to reduce its output by 1.4m barrels per day, with Saudi Arabia volunteering an additional reduction of 500,000 barrels per day. However, the timeline for these cuts remains unclear. While these measures apply upward pressure on oil prices, the increasing global rig count could mitigate this effect, contributing to a potential supply surplus.

Furthermore, there has been a consistent rise in the global oil rig count over the last two years. This trend could potentially exert a downward pressure on oil prices

Overall Balance of Forces

Bullish factorsBearish factors
OPEC+ cuts extendedIncreasing global oil rig count
Demand for automotive is increasingSlowdown in China’s economy
Demand for air travel is growingSupply glut from Russia
US GDP growthExtremely hawkish tone from the fed
Replenishment of America’s strategic oil reserves

Weighing up these factors, the balance appears to tilt toward a cautiously bullish stance in the short term, considering the sustained demand for automotive and air travel, OPEC+ cuts, and promising US GDP growth. However, the slowdown in China’s economy and global geopolitical tensions may cap potential price increases. Investors are advised to monitor these dynamic and interrelated factors closely to navigate this challenging landscape.

Establishing Exposure to Oil Movements via Marksmen Energy (MAH)

In summary, it is wise to maintain a bullish bias for oil, even in the medium term. Market conditions support this assumption. Investors looking to establish exposure to the oil sector can consider buying the shares of a key player in Idaho, US. Marksmen Energy Inc. (MAH.V), is a  burgeoning energy enterprise, initially focusing its efforts on exploring and developing light oil assets in Ohio. The company utilizes cutting-edge exploration technology to breathe new life into regions that, despite having significant historical oil production, have been largely neglected by concentrated industry activity for numerous decades.

The management team at Marksmen boasts extensive experience in profitably reviving old oil fields in Ohio and identifying previously underestimated resource opportunities. This positions Marksmen Energy to potentially take a front seat in the industry within Ohio.

Recently, the company made an unforeseen, significant discovery. During an exploration operation, one of the wells experienced a blowout, leading to the surfacing of oil, indicative of a substantial underground oil reservoir. This event facilitated the recovery of hundreds of barrels of oil and the ensuing cleanup. This new discovery, representing a formation distinct from the one originally sought, suggests a potential expansion of prospects. As relayed by the company’s CEO, this discovery paves the way for the drilling of more wells and an increase in the oil supply.

Steered by its skilled and experienced team of business leaders and scientists, Marksmen Energy promises effective management. The company’s currently appealing share price offers a potential opportunity for investors looking for energy commodity exposure within their portfolios.

The information and content mentioned in Global One Media’s blog are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. The content found in this blog is for general information only and was created for exclusive distribution on Global One Media’s network. Global One Media presented information that was available to them at the time of writing, for informational purposes only and is not intended as investment advice. Global One Media has no investment relationship at all with any entities discussed in the blog. Investors should seek financial advice before making any investment decisions.