Tallying My Oil and Gas Scorecard for 2023… and Looking Forward to 2024

What good is a prediction if there’s no follow up? Sort of like a lunatic screaming into a void.

So, as the year draws to a close, I thought I’d go back and cherry-pick some dispatches I sent you earlier in the year to see how my messages and expectations played out. That’s what the next few dispatches will be about.

We start with oil and gas prices…

Back in early February, I sent you a dispatch that began with a story from my childhood friend, Jim, who still lives in Louisiana, where we grew up. He was livid that gas prices—then at $3.45 per gallon nationally—were on the rise again. Oil prices were in the mid-$70s per barrel at the time.

I used Jim’s frustration to show how oil prices must navigate a fundamental headwind: Steep underinvestment in finding new reserves over the last many years. Between the COVID crisis that shuttered economies and the green-energy movement that irrationally wants all fossil-fuel dependence to end last Tuesday, exploration and production companies (E&P) have cut billions of dollars from their “find new oil” budget.

That was always going to leave a mark.

The world is decades away from cutting its dependence on fossil fuels. There’s simply not enough money to cost-effectively replace the entire fossil-fuel infrastructure in just a few years, as the Greens illogically demand.

Problem is: Continually rising demand for petroleum products globally—particularly in emerging markets that cannot afford widescale renewable energy projects—doesn’t pair well with E&P companies reducing their E and their P.

As I noted in that February column, oil and gas prices were going to push higher: “A run past $100 [per barrel for oil] is going to see gasoline prices push toward $5 per gallon and above.”

And how did that pan out?

Well, barrels of West Texas Intermediate, the U.S. oil price benchmark, topped out at $94.60. Prices for regular unleaded gasoline hit $5.016 per gallon on a national average basis in mid-June, according to stats from AAA.

So I’m gonna call that a 90% win.

Oil didn’t quite hang a century on the scoreboard, though it came darn close. Gasoline, however, did top five bucks.

As of early December, oil has retreated down to the low-$70 range, while a gallon of regular unleaded costs about $3.22.

That’s a function of an increasing belief among traders that a recession is in the cards for 2024, despite a lot of the glad-handing media telling us that the economy supercalifragically splendiferous, with a cherry on top! A recession would temporarily shrink demand.

Alas, just because it’s a sunny day in Nome, Alaska, doesn’t mean it’s tropical outside in the dead of winter. By which I mean that the E&P challenges the oil and gas industry face have not changed in the slightest, recession expectations or not.

In fact, I’d argue the situation has worsened.

Globally, car makers are backing off their electric vehicle gameplans. As Reuters reported back in October: “Demand is not keeping up with the expectations of carmakers and other companies that have invested billions of dollars in the EV space.”

Part of that is higher inflation, which makes financing these cars pricier for the typical family. And part of it is the increasing realization that on an all-in cost basis, EV cars and trucks are turning out to be much more expensive to drive than gas and diesel-powered vehicles. (And they’re equally harmful to the environment because of all the excess metals mining necessary to produce batteries.)

To that end, Honda and General Motors recently scrapped a $5 billion plan to build EVs together. Ford cut one of its three shifts at a plant that builds an EV truck and has shifted investment away from electric vehicles. Meanwhile, a South Korean EV battery giant, LG Energy Solution, warned that EV sales in 2024 will very likely underperform expectations.

What’s bad for green is good for oily black.

Problem is, oily black has no quick way to ramp up production because the industry still hasn’t spent enough to find new reserves to replace existing reserves that are dwindling by the day.

So we head into 2024 in the same place we were in the early days of 2023—mid-$70s oil and gas prices in the $3.20 range. Of course, that’s after having made a round trip to nearly $100 and back.

Looking ahead, I’m going to say oil prices dance in the same range for much of 2024—$75 to $100 per barrel. The caveats here, however, are many.

Cessation of fighting in Ukraine would likely push prices lower as Russian crude makes its way back onto the global market more broadly. That could push oil to the $50 range.

But if the Israel/Hamas war escalates and spreads more broadly across the Middle East, we would very easily see oil well north of $100.

If OPEC decides to ramp up production to fight the U.S. for market share, that would apply downward pressure on prices, sending oil down to the $50s or $60s.

In short: 2024 has the potential to be a messy year for oil prices. But longer term, the price bias is upward because the lack of adequate exploration means production woes are coming.

Next Tuesday… I Bonk you over the head. More to come.