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By David Gaffen, Editor, Energy Markets

Hello Power Up readers! The oil majors all came in with weak earnings as expected, the heat has finally receded in a few spots, but while the discussion was all around sweltering weather, the oil market has staged something of a comeback, so let’s look at that first. 

Today’s top headlines:

• Oil on track for biggest monthly gains in over a year
• UAE oil giant raises climate goal ahead of key UN summit
• India’s Solar Energy Corp proposes joint venture with Reliance – sources

For oil-market bulls, things are looking pretty sunny. 

Don’t look now, but the price of oil has crept up to where Brent is now at $85 a barrel and U.S. crude has surpassed $80. There are a few reasons why, but primarily, it’s because investors are feeling more optimistic about economic growth – bolstered by strong results from the United States and an improved outlook from Europe and are for the moment setting China’s woes off to the side. 

After a series of output cuts from the Organization of the Petroleum Exporting Countries, the market didn’t really flinch, too engaged in fears of slowed economic growth worldwide. That outlook’s change has bullish traders running the price up, even if economists don’t believe the rally can run too far.  

A Reuters survey of 37 economists and analysts show expectations for oil to average $81.95 a barrel in 2023, a reduction from the previous month’s consensus of a $83.03 average for the year. That’s not true for everyone, as Goldman Sachs said it expects Brent to hit $93 by the second quarter of 2024. One primary culprit for the rally now is the inventory situation, so here’s some thoughts on that… 

U.S. crude stocks have been declining of late, raising concerns about a deficit in coming months. (Graphic by Arathy Somasekhar) 

Overall oil inventories are starting to fall in some regions due to strong demand and the OPEC supply cuts, as Ahmad Ghaddar, Arathy Somasekhar and Trixie Yap report here. Both the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries expect oil stocks to draw down by 400,000 to 500,000 barrels per day (bpd). Refiners are pushing harder to boost output.  

“We are on the cusp of supply tightness. Saudi cuts are essentially accelerating the timeline,” said Christopher Haines, an analyst at Energy Aspects. The switch in the market’s tenor is notable, as overall global inventories hit their highest since September 2021 back in May. Fuel stocks in key hubs in the United States, northern Europe, Japan, Singapore and Fujairah in the United Arab Emirates have all been drawing down aggressively, according to FGE Global.  

TotalEnergies’ Patrick Pouyanne says the oil-and-gas industry is slowing. 

One source of higher output in the market could come from the world’s biggest oil companies, but that doesn’t seem likely. Several of the big names – Shell, TotalEnergies and Exxon Mobil – all fell short of expectations in the most recent quarter.

Further, the companies were cautious when it came to guidance for the coming quarter, too. Chevron left its production estimate alone but said that output would come in at the low end of its expectations in the 3 million barrels of oil equivalent (boepd) range, as Sabrina Valle reports here.  

Exxon meanwhile kept its production forecast largely unchanged, and Shell and Total both reported sharp drops in profit from the year-ago period. Total’s Patrick Pouyanne said the results showed the market is in a “softening oil and gas environment.”  

Output from the UK has been in decline – and is expected to fall more in coming years. (Graphic by Shadia Nasralla)  

Britain is committing to granting hundreds of licenses for North Sea oil and gas activity so it can become more energy independent, but environmentalists are angry about this because of Britain’s stated effort to hit net zero carbon emissions by 2050, as Sachin Ravikumar and Susanna Twidale report here.  

The country’s prime minister, Rishi Sunak, also announced support for two carbon capture and storage (CCS) clusters in Scotland and northern England. The country’s overall oil-and-gas output from the North Sea has steadily dwindled in the last 20 years, dropping from 4 million barrels of oil equivalent per day to less than half that. But climate activists aren’t buying the notion of CCS being a panacea for the drilling. “CCS won’t capture all the climate pollution caused by burning fossil fuels,” said Mike Childs, head of policy at Friends of the Earth. 

“I am very confident that the symbiosis of all actions will lead to the fact that we will be able to reliably ensure supplies during the heating season.” 

Ukraine energy minister German Galushchenko on the outlook for winter. 

Pakistan is unlikely to hit a goal to have two-thirds of its oil imports come from Russia, as Ariba Shahid and Sudarshan Varadhan report here. The country has designs on becoming one of Russia’s biggest customers, taking advantage of discounted crude to meet energy needs, but Pakistan has enough problems on its own to make this happen.  

The nation’s ports don’t have the capacity to handle large vessels leaving Russia; the oil from Russia also is of a lower quality than other suppliers like Saudi Arabia, and Pakistan has a limited supply of Chinese yuan, which it had used to buy its first cargo from Russia. 

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