We are entering year-end holiday seasons. It is nice to observe that most people can go on holiday domestically and internationally. The Indonesian government has previously predicted a 2.83 percent increase in holiday travelers this season, with the total reaching around 110.6 million people. Jakarta Post reported that state-owned airport operator: Angkasa Pura Indonesia, has estimated that air passenger traffic during the year-end holidays will reach its peak on December 20, while post-holidays traffic will peak by January 4, 2025. 

If we look back just 4 years ago, traveling by airplane was near impossible due to COVID-19 lockdowns. As we know, the oil and gas industry was one of the impacted sectors. Especially since the lockdown caused a very low demand with an unforeseeable future at that time. Oil prices were hit badly. Brent price was around 55 USD/bbl during the winter of 2020. We have seen the price increase since then due to returning global activities and an unprecedented war between Russia and Ukraine. 

This year, there are a lot of geopolitical conflicts (Israel, Yemen, Iran, the on-going Russia Ukraine, and much more). However, it seems these days oil market sentiments are not only highly driven by geopolitical events. In the beginning of 2024, Brent price was around 77 USD/bbl. Now, near the end of 2024 when I wrote this article, it is around 73 USD/bbl. 

As an individual investor, we cannot predict where the price will go. Most of the news and predictions are telling us there will be supply glut coming around due to Trump’s drill-baby-drill policy and China’s economic slowdown. However, it is interesting to check if those predictions are valid. Or maybe we can choose to be a contrarian?

Let’s try to get a closer look at both supply and demand.

Supply

Based on the latest Rystad report in Oct 2024, global crude oil inventories are the lowest on record since 2017. 

If we look at The US as the biggest oil producer in the world, the inventory also showed below 5-year average.

The supplies are low. Even in some parts of the world, the supplies are below COVID-19 era levels.

Demand

The main contributor of oil demand commonly came from China as the world’s biggest economy. However, state-owned China National Petroleum Corporation (CNPC) said earlier December that the demand could peak in 2025 due to high penetration of EVs and LNG-fueled trucks in China. Recently, most reports showed that the confidence on demand will only come from petrochemicals as both private and state-owned companies pushed to boost self-sufficiency of petrochemicals in China. 

However, is the forecast for demand really that bad? The most logical step is to look at the next big economy which is India. Will India’s demand fill the gap from the China slowdown?

Another issue that is still a hot topic these days is electric vehicle (EV) penetration. The concern about EVs penetration is valid, and we do need cleaner air too anyway. We still need to be critical here, to think about how fast EV will replace all ICE vehicles. 

Another good chart provided by RaymondJames advisory showed that Norway’s oil consumption is down at low single digit percentage given significant increase of EVs penetration.

I still think that the recent sentiment is way too pessimistic. Especially if we look at the upcoming projects that are already confirmed by the end of 2024. We don’t even need to look away further since there is positive news from the Indonesian market. 

The total number of oil and gas blocks offered to 11 this year, in addition to the five offered in the country's first bid round in May 2024. Notable announced projects this year are:

• Geng North (North Ganal PSC) and Gehem (Rapak PSC) fields that will be operated by Eni. The integrated development of the two fields will create a new production hub, called Northern Hub, in the Kutei Basin. A newly built FPSO with a handling capacity of about 1 BCFD gas and 80,000 barrels of condensates per day and a storage capacity of 1 million barrels will be built to support The Northern Hub that is expected to be online in 2027.
• Central Andaman that will be operated by Harbour Energy with a new gross split scheme. Harbour Energy has 60% operating interest and 40% stake is owned by Mubadala Energy. The block is expected to start production by 2028.
  

In the spirit to achieve 1 million bopd by 2030, the government of Indonesia sets a target to achieve more than 1,000 exploration wells in 2025. In 2024, exploration drilling reached 925 wells

Another interesting announcement is the government of Indonesia issued a new regulation PERPRES 96/2024 to establish Indonesia’s Strategic Energy Reserves (Cadangan Penyangga Energi / CPE). The regulation outlines the management of energy reserves by the Indonesian government. Types of reserves regulated include gasoline (9.64 million barrels), LPG (525,780 metric tons), and crude oil (10.17 million barrels). 

The supplies will be prepared gradually until 2035 and to be aligned with government financial capacity. However, today we don’t have access to the actual supplies in the country. But it shows a strong commitment by the government to strengthen domestic energy security and to reduce import dependency.

As we are entering 2025, we might still hear the same old song of peak oil. Especially if this winter turns out to be a warmer winter again. It might be easy just to follow the noises on the quick transition to cleaner energy, but it’s important to continue to follow the fundamental basics. By 2023, oil and gas are still contributing up to 50% global primary energy consumption. It’s probably still too early to call a peak on fossil-based energy sources.

The better question to be asked is, what could replace oil to empower our lives?