Global Oil Supply Will Keep Growing, Goldman Says

Key Concepts

Equity Futures: Contracts to buy or sell equity at a predetermined price on a future date.
S&P Futures: Equity futures based on the S&P 500 index.
Yields: The income return on an investment.
10-Year Yield: The yield on a 10-year government bond.
Crude Oil Prices: The market price of crude oil.
Oversupply: A situation where the supply of a commodity exceeds demand.
Oil Giants: Major multinational oil companies.
Production Growth: The increase in the output of oil.
Global Stockpiles: The amount of oil held in storage worldwide.
Debt Financing: Using borrowed money to fund projects.
Back Producers: Countries or regions that are increasing oil production.
Latin America: A region with significant oil production.
Slowdowns: A decrease in the rate of growth or activity.

Market Overview

Equity futures are showing an upward trend, specifically on the S&P futures. Yields on the 10-year benchmark are marginally higher. In contrast, crude oil prices continue to decline.

Oil Giants' Earnings and Production Outlook

The earnings reports from major oil companies are currently being released, providing insights into the future of oil production.

Exxon Shares Lower: Exxon's shares have experienced a decline.
Chevron Rising: Chevron's shares are increasing following the announcement of strong financial results.

Key Assumption: The earnings reports help to validate the assumption that oil supply will continue to grow.

Production Growth Estimate:

Q4 20XX: Oil production is estimated to increase by 4% in the fourth quarter of the current year.
Comparison to Normal Year: This growth rate is four times higher than a typical year.

Impact on Oil Prices:

Oversupply and Stockpiles: The combination of increased production and rising global oil stockpiles is supporting a view of downside pressure on oil prices.
Price Projection: A potential downside of $10 per barrel is projected over the next year.
Average Price Forecast: The average price for crude oil is expected to be $56 per barrel next year.

Production Strategy and Debt Financing

The discussion touches upon the strategies employed by oil giants in the face of falling prices and oversupply.

"Race to the Bottom" Concern: The question is raised whether the current situation represents a "race to the bottom" in terms of pricing.
Exxon's Debt Strategy: Exxon is reportedly considering taking on more debt to finance additional projects, indicating a strategy to maintain or increase production despite market conditions.

Future Production Trends and Slowdowns

Looking further ahead, the analysis points to shifts in global oil production.

Growth Drivers: Production increases in 2025 and 2026 are expected to primarily come from "back producers" and production in the Americas, with a particular emphasis on Latin America.
Anticipated Slowdowns: Beyond this period, sharp slowdowns in global supply growth are anticipated.
"Last Jump" Analogy: This period of increased production is characterized as the "last jump" in global supply before a likely recovery.
Price Implications: This anticipated slowdown in supply growth is a key reason for the expectation that oil prices could decline further next year, marking the final phase before a potential market recovery.

Conclusion

The current market sentiment is characterized by rising equity futures and marginally higher yields, juxtaposed with falling crude oil prices. The earnings of oil giants are revealing a significant expected increase in oil production, particularly in the fourth quarter of the current year, which is four times the normal rate. This oversupply, coupled with growing global stockpiles, is projected to lead to a $10 per barrel downside in oil prices over the next year, with an average forecast of $56 per barrel. Companies like Exxon are considering increased debt financing to support ongoing projects, while future production growth is expected to be driven by emerging producers and the Americas, especially Latin America. However, a significant slowdown in global supply growth is anticipated in the years following 2026, which could mark the final leg of price decline before a potential market recovery.