Rumours of the demise of oil appear to be greatly exaggerated, according to the latest market fundamentals..That’s because the Paris-based International Energy Agency (IEA) is predicting world oil demand to hit record highs later this month, which should ultimately prove beneficial to the Alberta treasury..According to the IEA’s monthly oil market report, world oil demand hit a record 103 million barrels per day (bpd) in June, pushed by the post-pandemic recovery. The July numbers are yet to be released, and IEA says the numbers will likely move even higher in August..“World oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity,” it said. “Preliminary data suggest global inventories drew further in July and August.”.All told, the IEA expects global oil demand to average about 102.2 million bpd this year, which is also an annual record, with China accounting for about 70% of that growth. Likewise, demand in OECD (developed) countries is moving higher after falling in the first half of the year as recession fears ease..The problem is that world oil production has failed to keep pace with the3 demand, despite hitting a record 101.5 million bpd. In fact, that number fell to 100.9 million bpd in July after Saudi Arabia and its OPEC cohorts cut output by 1 million bpd and is poised to fall further in August..That means the planet is burning through surplus stockpiles at a steady clip, reducing inventories to multi-year lows. Global oil inventories fell about 17 million barrels in July and are 115 million barrels below the five-year average..Toss in sanctions on Russian oil exports and continued uncertainty stemming from the war in Ukraine and it all adds up to a recipe for higher oil prices through the rest of the year and into 2024, when the IEA expects demand growth to moderate following the peak winter season..No surprise, oil prices rallied almost 13% in the last two weeks of July. Global benchmark Brent — which is sourced from the Scottish North Sea — gained more than US$11 per barrel to hit $86. It was trading above $87 on Friday morning..West Texas Intermediate — which Canadian oil is priced off — fell below $67 at the end of June before hitting a year-high of $84.20 this week. In early trading, it was at $83.40 on Friday..Given that the Alberta government has budgeted on $79 per barrel to balance its 2023-24 budget and post a modest surplus, provincial coffers should be swimming in resource revenue. Each dollar up or down is worth more than a billion dollars either way..More important, from an Alberta perspective, the Western Canadian Select (WCS) discount has tightened dramatically, falling to about $5 — net of shipping to Cushing, OK. — at the start of the month from a historical range of about $20 in January..Which is to say, Alberta oil producers are receiving proportionately more for their barrels than even a year ago when prices were higher..That will take a petroleum accountant to sort the details, given that the Alberta government’s share of oil royalties are taken in kind — as physical barrels — and sold on the open market..But suffice to say, the province’s books are firmly back in the black and look to stay that way for the next fiscal year..In a research report, British bank Standard Charter said it expects Brent to rise steadily through 2023 before hitting $106 by the end of next year.
