“We will be consuming oil for the rest of our lifetimes,” says Eric Nuttall, senior portfolio manager at NinePoint Partners. In the ‘Energizing Your Returns: 2023 is About Shareholder Returns’ session at the Institutional Capital Allocators Conference, he said despite decarbonization efforts and even under the extreme scenario of rapid electric vehicle, hydrogen adoption, and moderating GDP growth, global demand for oil will grow until the mid-2030s. Currently, there is a huge dislocation between the physical demand for oil and the financial demand. As well, global inventories continue to fall indicating undersupplied markets as the most profound sell-off since September 2020 has taken place. However, while demand may fall in the U.S. and Europe, demand from China, India, and other non-OECD countries is growing. There could also be a multi-year low in oil inventories as U.S. shale hyper-growth is slowing due to financial and geological constraints. Wells are getting less productive, there are less of them, and they are getting gassier, he said. The exhaustion of OPEC spare capacity could also occur with a shortage of oil supply as Chinese demand is set to surge. He said that eventually 2023/2024 inventories will go low enough to send a price signal to the market that demand destruction is necessary as supply growth can no longer balance the market. The oil price must stay high enough to kill discretionary demand while incentivizing long cycle development if this is even possible in an environment of Uber decarbonization and energy sector vilification. Still “while the path will be bumpy, we remain confident in the ultimate destination of higher oil price sustainability for years to come,” said Nuttall.
- PWC