I want to highlight two critical oil charts.

The first is from Goldman Sachs and it illustrates broad levels of oil spending globally. Remember that conventional global reserves run off at 5-7% annually and that needs to be replaced, and that we're in an inflationary environment; so $1 spent in 2019 isn't as useful as $1 today.

broad energy spending GS

That chart fits in with what companies have been saying (and shareholders demanding) in terms of spending discipline. It's in response to a decade of runaway spending and little returns in shale.

The second chart highlights US DUCs, or drilled-but-uncompleted wells. In the shale boom, companies drilled many wells that were never finished. Some were uneconomical. Completing the well is still expensive and some were left for better times, while others were avoided due to poor nearby acreage or parent-child well issues. Notwithstanding that, the point of this chart is that DUCs have been tapped since the start of the pandemic and are a sort-of shadow SPR or reserves.

But DUCs are running out and when we get to the finish line (we may already be close), it will be another headwind to supply and mean either much more spending or fewer barrels coming into the market.


WTI stumbled lower late today and is trading down $1.69. I want to highlight the brent chart today though as it clearly shows how close oil is to a breakout from the pennant formation. There are plenty of reasons to see declines here as well (No EU sanctions, China lockdowns, global growth worries, etc).

Ultimately though, the medium-term supply challenges will win out and mean higher prices unless there's a significant near-term pickup in spending globally.

brent chart