Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What Would Happen If Venezuela & the Middle East Couldn’t Access Oil?

Politics / Crude Oil Jul 16, 2019 - 09:44 AM GMT

By: Rodney_Johnson

Politics We’re hyper-focused on politics at the moment because, well, Trump. If he weren’t the president, with unshakeable support from one faction while inducing loathing from another, then the 2020 election cycle might be a touch less fanatical. But he is the president, and we’ve got Democratic hopefuls pummeling each other as they move to the left, promising many nw programs with questionable funding sources.

It’s as if the laws of supply and demand have been suspended.

Maybe they have when it comes to politics, but back in the real world, supply and demand do matter. And this cold reality could put the energy market in the deep freeze over the next 12 months.



Energy On Ice

It’s a matter of production.

The International Energy Agency predicted that global oil demand would rise 1.3 million barrels per day (bpd) in 2019, soaking up most of the expected increase in U.S. production. But over the last couple of months, analysts have been trimming their demand forecasts, noting weaker economies around the world. Instead of bumping demand by 1.3 million bpd, we might see an annual increase of just 1.0 million bpd.

And yet the U.S. energy complex continues to pump out record amounts of oil.

In June of 2018, the U.S. recovered 10.6 million bpd, double the amount it produced in 2009. A mere 12 months later, we produced 12.16 million bpd, an increase of 1.56 million bpd, which is more than the entire increase in global demand expected this year.

But there are other factors at work.

Sanctions On Oil

While the U.S. has put more oil on the international market, other nations have cut supply, but not by choice.

U.S. sanctions and inept management have cut Venezuelan oil supply from 1.48 million bpd at the beginning of the year to 1.05 million bpd, the lowest level since records began in the early 1970s.

U.S. sanctions have trimmed Iranian oil supply from 3.8 million bpd to 2.37 million bpd over the last 12 months, the lowest daily rate since 1989. Combined, these two countries cut global oil supply by 1.8 million bpd over the last year.

OPEC and the Russian coalition, together called OPEC+, have orchestrated supply quotas to keep oil prices steady in the mid $60s.

International Pain Points

What happens when fortunes turn for Venezuela and Iran?

Both countries rely on oil exports for hard currency, which is then used to buy food and necessities from other countries. They need to sell as much oil as possible to reverse their terrible economic fortunes. It’s difficult to see how either country would abide by a supply quota when they face such dire conditions at home.

At the same time, U.S. energy production continues to grow. We already produce more oil than at any time in the history of the country. And we are expected to pump around 18 million bpd by 2025.

The laws of supply and demand are clear. Either OPEC+ will have to reduce supply quotas while allowing Iran and Venezuela to pump oil to fund their national budgets. That will essentially cede market share to the U.S. Or the market will be awash in oil, driving prices back toward the lows of the 2010s, just under $30 per barrel.

Neither option is attractive for oil producers. Perhaps OPEC+ splits the difference, allowing some increased production with an equivalent moderate drop in price. However, it still means lower energy prices.

The pain in the U.S. will ripple through the energy industry, driving more producers into bankruptcy, as Harry has long predicted. In other countries, the pain will be felt in the government because oil is controlled by nationalized organizations.

There are some caveats

If sanctions against Iran or Venezuela remain in place, then some of their oil production will remain offline. Also, if tensions with Iran escalate, then oil transport through the Strait of Hormuz could be disrupted. Which will send prices sharply higher.

But those possibilities seem temporary. The long-term trend is for oil production to outpace demand growth. That’s a situation that should keep prices under control for years to come. And could drive prices sharply lower over the next year.

Don’t be surprised to look away from the political circus one day to find that oil prices have dipped to the $30s.

Rodney Johnson

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2019 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in