Newsletter

The narrative is that U.S. oil consumption has recovered from 2020 is false. Demand remains ~750 kb/d less than in 2019 & transport fuel consumption has not recovered to pre-pandemic levels.

The timing and degree of demand destruction varies for each cycle of oil price and inflation increase but it occurs within every cycle since 1972.

The trajectory of oil prices has changed course since early March and it is downward. Analysts continue talking about incredibly tight supply and prices going to $185 or higher but WTI…

Peak oil has come back to haunt us. Shale plays bought the world another decade of supply beyond what anyone imagined twenty years ago. Those plays are far from depleted but enthusiasm for oil is.

Recent events in Ukraine introduce unthinkable uncertainty into energy markets and the world order that may emerge. Geopolitical consequences are likely to be the most serious in decades. Whatever the military outcome, the Russian economy will probably be ruined.

Bin Salman’s dangerous error remains waiting for demand before increasing supply. His strategy was a recipe for losing control.

Old paradigm analysts cannot fathom a reality in which oil demand adjusts to supply limited by investors who see a finite future for oil.

Analysts who beat the drum about under-investment and say like Goldman’s Jeff Currie that “there’s no supply increase in sight”, either aren’t paying attention or are too busy pitching their own bullish book to care.

The problem with under-investment and super-cycle arguments is that the market has to be wrong for them to be right. I’m not predicting an imminent collapse in oil prices. I am saying that higher for longer seems like an improbable outcome based on what we know today.

If oil is going to $100 as some think and others hope, inflation will soar. If that happens, I fear for our fragile economic recovery and for oil demand.

Falling inventories are an artifact of OPEC+ export cuts and not a sign of under-supply. The present reality is that the world appears well supplied for 2022. Prices rarely increase when supply seems adequate. Markets are smarter than that.

The good news is that well performance increased before the Covid collapse in March 2020. The bad news is that as rig count and completions recovered, production has stayed flat or decreased somewhat.