Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Life Sciences Biotech Smaller Cap High Risk Stocks Investing Binge - 24th Jun 21
Central Banks to Keep Buying Gold - 24th Jun 21
Will Gold Survive Hawkish Fed? - 24th Jun 21
The Clean Energy Compound That Could Change The World - 24th Jun 21
Everybody's Getting Rich (and Having Fun) Except Me - 24th Jun 21
WESTERN DIGITAL WDC Stock Trend Analysis - CHIA! - Risk 1 - 23rd Jun 21
AMC Is the Best-Performing Stock in America: Don’t Buy It - 23rd Jun 21
Stock Market Calling the Fed‘s Bluff - 23rd Jun 21
Could Bitcoin Price CRASH Target A Bottom Below $7500? - 23rd Jun 21
Bitcoin and cryptos: Your 'long-term investment'? - 23rd Jun 21
Unlocking The Next Stage Of The Hydrogen Boom - 23rd Jun 21
USDT Ponzi Scheme FINAL WARNING To EXIT Before Tether Collapses Crypto Exchange Markets - 22nd Jun 21
Stock Market Correction Starting - 22nd Jun 21
This Green SuperFuel Could Change Everything For the $14 Trillion Shipping Industry - 22nd Jun 21
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21

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

© 2005-2019 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