Pun intended on the "Deep Dive" part -- at least in the short-term. Read further to find out what I think the future holds for Oil.
This piece was a wealth of knowledge. Thank you!
Thanks for this, Michael. Your writing (thinking) is incredibly clear, given the murky topic. I've got some weight in Josh Young-type small oil co's, and me thinks I may lighten that up, for the time being.
This is a fantastic article Michael! I think the relatively high prices of the last 12-18 months are also weighing on demand, recession aside. To that point, we are already seeing weak demand in the OECD with unemployment rates still at record lows. That portends very poorly for any situation where unemployment ticks up which could really wreck near term demand. Very thoughtful piece.
Could be a precarious situation for the Euro if the demand curve for energy shifts upward. Phenomenal work Kao! would love to hear your thoughts on the Euro, in regards to the direction of the euro economy and subsequent impact on the $.
Thanks as always for a great read.
Do you see any future movement toward more acceptance
(or at least less protest) of nuclear energy in the USA?
Such a great article, thank you!!
I'm a little late to the party here, but I wanted to mention a wildcard to see if you have any thoughts on it. Particularly on how long it might take Shale to decline.
Refracking has become far more effective in recent years because they've gotten really good at detecting sections of the horizontal pipe that contributed very little to the well's production over its life. They've basically found that refracking those sections is very effective at restoring production as well as being cost and time efficient. Halliburton thinks some 50k wells are good candidates, so this could sustain output for quite a while. Finally, given how quickly refracking can be done, this MIGHT preserve shale as a swing producer for a while as well. We've already seen this behavior after the Ukraine invasion, where rigs were able to refrack an old well inbetween fracking jobs- while waiting for the next site to finish prep.
Now I don't how much of this might be Halliburton marketing, but it's certainly a wildcard worth looking into!
Forward Supply Elasticity is what I worry about longer-term, and this chart doesn’t even take into account increased Spare Capacity and China SPR.
The longer the Singularity is out off, the shorter the corridor of viability.
As I wrote in my piece, SECULAR FUEL SUBSTITUTION for China/India worry me for Oil’s LT thesis.
The more that forward Supply Elasticity pushes out the Supply/Demand Singularity, the greater the risk of it never happening.
I think today was about relief over Debt Ceiling more than anything else.
For commodities to get a sustained bid, I think RoW needs to stop tightening. Because PBOC stimulus alone while RoW continues to tighten will just devalue CNY further which is DEFLATIONARY.
Heading into another OPEC+ meeting, I’m going to reiterate that OPEC+ FUCKED UP with its premature cuts.
Now, they either have to CUT AGAIN and risk FRACTURE with Russia, or Oil prices are going a lot LOWER given the reset expectations (with NO benefits).
Thinking about the implications of COST missing so badly today.
Imho, it is a sign that the middle class is getting creamed. With Unemployment so low, that can only be from INFLATION.
HIGHER FOR LONGER — that is my read.
US as Swing Regime was disastrous for prices because we have a free market with antitrust laws so no collusion potential to restrict Supply.
Transition to OPEC as Swing is supportive, ceteris paribus, BUT Shale is still a big % of volumes & still growing.
Natural gas is now the most important commodity. So at current American natural gas prices if the price of oil were forecast at $100/barrel for a long period of time then you would see billions being invested in the Lake Charles area to transform natural gas into diesel and kerosene. But at some point we need to transition corn from being a feedstock for ethanol to corn being feedstock for SAF and biodiesel…with all of the farm equipment being powered by wind and not diesel. I just believe the Age of Oil has gone the way of the Age of Coal and thanks to Putin’s asinine invasion of Ukraine we are now in the Age of LNG…and America is the Saudi Arabia of LNG!