Upstream sector entering a multi-year upcycle after 8 years; RIL, ONGC could give 15-20% in 2024
sector is entering a multi-year upcycle after eight years of underinvestment, and it continues to be our preferred sector in the oil & gas space.
In our view, refining remains in a sweet spot, but marketing is expected to remain volatile.
Global energy agencies (such as IEA and EIA) are forecasting a strong trajectory for oil prices in 2024, despite the recent demand-related concerns.
The strong oil price outlook is premised upon: a) widespread belief that OPEC+ will likely continue with ongoing production cuts beyond 31st Dec’23; b) the key oil and oil product inventories in OECD countries, which remains mostly below the five-year average levels of global oil supply, is set to grow by 1.6mnbopd (IEA) in CY24.
With rising production, Iran’s crude oil exports have increased to ~1.5mnbopd (link) and the market was counting on the fact that Iran’s crude oil exports could rise by another 0.5-0.7mnbopd, especially if Iran and the US reached an agreement on the nuclear deal.
In a bid to alleviate the ongoing tightness in oil supply, the US administration has also granted a temporary sanction relief to Venezuela for its oil and mining sectors until 18th Apr’24.
Despite the temporary easing of sanctions, we do not anticipate a significant increase in oil production from Venezuela in the short to medium term.
However, if the sanctions are permanently lifted and investment increases, we do recognize Venezuela as a potential source of increased supply risk in the second half of 2024 and beyond.
We expect high oil prices (USD80-100/bbl) to continue for much of CY24 due to resilient demand growth (CY24: 0.9mnbopd; IEA) amid sufficient new supply (CY24: 1.6mnbopd, IEA) but prone to delays.
Gas prices are projected to remain
