Deltec Think About This Oil Is Not Gushing - Page 8

Think About This
INVESTMENT RESEARCH
OPEC SPARE CAPACITY
1800 1600
Thousand barrels per day
1400
1200
1000
800
600
400
200
0
Algeria
Angola
Congo ,
Republic
Equatorial Guinea
Gabon
Iran Iraq Kuwait Libya Nigeria
Saudi Arabia
U . A . E .
Venezuela
Likely to lift production Unlikely to lift production
Sources : Bloomberg , OPEC , Deltec
Angola isn ’ t doing any better . In June , Angola ' s oil minister lowered its targeted oil output for 2021 to 1.19 million barrels per day , due to production declines at mature fields , drilling delays due to COVID-19 and " technical and financial challenges " in deep water oil exploration . This is nearly 11 % lower than their 1.33 million barrel OPEC quota . With increases of just 140,000 barrels per day in September and 217,000 barrels per day in October , OPEC has yet to meet the planned 254,000 barrels per day production increases they had scheduled .
Our view is that the dearth of capex over the last 5 years is finally coming home to roost . The two regions with the potential to instigate supply responses are doing so cautiously and slowly and this market should remain tight beyond 2022 .
It would be obtuse not to mention demand . There are , no doubt , structural imperatives ( environmental , social and geopolitical ) driving down demand . These will continue to drive down hydrocarbon demand per capita and per unit of GDP , but alternative energy sources are not yet big and established enough to displace oil completely . Although we expect global demand to begin to flat-line this decade , until then the drumbeat of low single digit demand growth will continue . Currently the supply constraints caused by conscientious capital only support pricing .
So how to invest ? Within the energy sector , we prefer upstream Exploration & Production companies which offer a levered play on the oil price . Many of these companies remain committed to capital discipline , so production growth year on year will be low or flat . But strong oil prices , huge free cash flow generation and an emphasis on returning capital to shareholders are strong tailwinds . This is where we are focusing our attention and investments . We are not yet ready to allocate to drillers and service companies .
We would encourage clients to look at our portfolios and funds , and listen to our regular calls or contact our team if they want colour on stock picks and position weighting . As always , we are here to serve .
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