Crude Oil Could Fall to $40 if OPEC+ Fails to Deepen Cuts

As US oil production surges, the global oil market will be fundamentally oversupplied in 2020.

US shale oil producers are continuing to push production to new highs, even after having cut back on drilling activity, as they complete thousands of wells they’d previously drilled. And given this surge in production, the US has become a net exporter of crude oil and petroleum products (which include gasoline, diesel, jet fuel, etc.) in September for the first time, meaning the US imports less crude oil and petroleum products than it exports (Momentous Change in US Crude Oil Market, with Global Impact). So below is an estimate by Rystad Energy of what the pricing environment might look like next year:

By Rystad Energy, Oilprice.com:

Barring additional oil production cuts by OPEC in 2020, Rystad Energy forecasts a substantial build of global crude stocks and a corresponding drop in oil prices. A showdown is taking place in Vienna as OPEC countries plus Russia will gather in the Austrian capital on 5-6 December to discuss oil output levels in 2020.

“We have a clear message to the OPEC+ countries: A ‘roll-over’ of the current production agreement is not enough to preserve a balanced market and ensure a stable oil price environment in 2020,” says Bjørnar Tonhaugen, head of oil market research at Rystad Energy. “The outlook will be bleak if OPEC+ fails to agree on additional cuts.”

According to Rystad Energy’s estimates, the global oil market will be fundamentally oversupplied to the tune of 0.8 million barrels per day (bpd) in the first half of 2020. Empirical evidence has demonstrated that a 1 million bpd surplus of oil can be expected to cause an oil price decline of around 5% per month, implying a potential drop of 30% over six months.

“If OPEC and Russia don’t extend and deepen their cuts, we could see Brent Blend dip to the $40s next year for a shorter period,” Tonhaugen said. “In order to ensure a balanced market, our research indicates that OPEC would need to reduce crude production to 28.9 million bpd – a drop of 0.8 million bpd from the level seen in the fourth quarter of 2019-levels – given our forecast for demand, non-OPEC supply and the impact of new IMO 2020 regulations on global crude runs,” Tonhaugen added.

New shipping fuel regulations, the so-called IMO 2020 effect, are expected to create more demand for crude oil in the near-term. However, if the actual effect of the IMO rules on crude demand turns out to be zero the “call on OPEC” – the amount of OPEC oil needed to meet demand – drops by 1.9 million bpd year-on-year to 28.3 million bpd.

“Despite decent cut compliance from the group as a whole and large involuntary declines in Iran and Venezuela this year, OPEC’s current crude production of about 29.7 million bpd is far above the ‘call’ for 2020. Alas, without deeper cuts taking effect in January 2020, large global implied stock builds are on the cards,” Tonhaugen remarked.

Rystad Energy sees three alternative OPEC+ decision scenarios:

Base case: Extension of current production cuts to June 2020. Global oil market will be oversupplied to the tune of 1.2 million bpd in 2020. Significant oil price correction, possibly down to the low $40s for a short period, is likely.

Deeper cuts: Additional cut of 0.75 million bpd on top of the 0.3 million bpd in the extension scenario would reduce the supply overhang and ensure stable prices.

No deal/market share war: A ramp-up to maximum production capacity in all countries could have devastating effects. With potential stock builds of 2.3 million bpd, oil prices could fall below $30/bbl – lower than during the previous lows of 2016. Such a scenario would be devastating for the forward curve structure as potential stock builds would be larger than what we have observed historically.

Rystad Energy finds that OPEC+ as a whole has cut oil production by 2.6 million bpd year-to-date, compared to October 2018 reference levels and the cut target of approximately 1.2 million bpd. The additional 1.4 million bpd of “cuts” are owed entirely to involuntary declines from Iran and Venezuela, both of which are exempt from the agreement. Saudi Arabia has led the group’s compliance by cutting 870,000 bpd in 2019, or 2.7 times its target cut of 322,000 bpd.

“Saudi Arabia has signaled that it seeks stricter compliance by other producers and is no longer willing to shoulder the burden of sub-compliance by others, such as Russia, Iraq and Kazakhstan, which have all failed to reach 100% compliance with their target cuts,” Tonhaugen said.

The challenge for OPEC+ is the strong supply growth elsewhere in the world. Rystad Energy forecasts a supply growth of 2.6 million bpd year-on-year in 2020, led by US shale, Norway and Brazil against weak global demand growth of only 1.0 million bpd year-on-year. Rystad Energy forecasts that non-OPEC non-US supply will grow 1.2 million bpd year-on-year in 2020, OPEC estimates this number at 0.6 million bpd year-on-year. By Rystad Energy, Oilprice.com.

US exports of crude oil and petroleum products – gasoline, diesel, jet fuel, naphtha, and many others – exceeded imports in September by 89,000 barrels a day, and so the US became a “net exporter” of crude oil and petroleum products for the first time in the EIA’s data. But US “Energy Independence” is more complicated. Read…  Momentous Change in US Crude Oil Market, with Global Impact

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  82 comments for “Crude Oil Could Fall to $40 if OPEC+ Fails to Deepen Cuts

  1. Augusto
    Dec 3, 2019 at 4:45 pm

    I’m not sure that Opec cutting is going to have much impact. First there is the member compliance issue, which is always a problem. Second, there is a lot of new pipeline capacity coming on in the US, meaning a lot more oil to move, including all those incomplete wells…some of which have been waiting for space on the pipelines. Third, although new drilling may be less in the US, there is an increased emphasis on field management vs drilling, including refracs, side-tracks and other tertiary recovery programs…all these options are cheaper than just drilling up new land-although rig rates and related services come down when rigs are under-utilized as well. Add in pipeline companies competing for customers (cutting prices), companies trying to survive by pumping and you’ve got a lot of drivers for higher production. Also, note, when oil companies go bankrupt, the new owner/producer will have a lot less cost of capital to deal with. So I think oil production in US is going higher and price lower….good luck OPEC…

    • 2banana
      Dec 3, 2019 at 5:21 pm

      OPEC…a cartel of corrupt countries that endeavors to fix as high a price as possible for a natural resource needed for the survival of the rest of the modern world.

      They would be illegal and jailed in the US.

      And they deserve everything coming to them.

      • Dec 3, 2019 at 5:55 pm

        Amazing how many OPEC countries are welcomed here in the US with open arms and have an almost certain US guarantee of military help so they can keep their “illegal” game going just as long as it will last. It never mattered to OPEC which party was in power because neither party was ever going to reign in what you have described as illegal and neither is ever going to jail those with real money and power.

        • Cas127
          Dec 3, 2019 at 6:28 pm

          DC,

          “Amazing how many OPEC countries are welcomed here…”

          In the early 70s the US gvt cut a pretty sleazy deal with the Gulf States – recycle your huge petrodollar gains into NYC based/directed invts and we will put the US military at your disposal to defend you.

          DC did it bc otherwise the petrodollars would have been directed elsewhere for invt/use and that would have significantly disrupted the US economy (even more) – toppling the political class in DC.

          So they sold the US military in exchange for the illusion of US economic normalcy (long deteriorating domestic economics had already forced the US gvt off the gold STD in 71.)

          In a world without a gold STD, the petrodollar recycling deal more or less implicitly took its place – almost all intl oil deals are in dollars (not Saudi rials) – helping to prop up the Fiat paper dollar.

          In a very real way, via the petrodollar deal oil became the actually useful commodity backing the dollar (backed by a sort of US protection racket cum backroom deal between political elites in DC and the Gulf).

          DC has worked hard to keep this mutual political class back scratching from being a topic of common conversation, otherwise US dependency and almost continuous deterioration in economic world standing since the 50s would be clearly exposed – again threatening the DC political class.

          Fracking has helped reduce Gulf leverage over the US but it has stabilized things at a much higher oil price than the 30 dollar ceiling that lasted from the mid 80s to 2003 (when Chinese demand started oil’s ascent to $110 by 2009).

          Unfortunately, fracking etc is still costly – probably requiring a 40 to 50 dollar floor to function at all.

          The Gulf States theoretically have astronomical oil reserves that can be profitably produced for 5 to 10 dollars per barrel – still giving them huge long term leverage over the world economy – until non-Gulf nations discover/exploit similar low cost reserves or fracking tech becomes much cheaper via experience.

        • Willy Winky
          Dec 5, 2019 at 12:42 am

          Of course they are welcome!

          The Untold Story Behind Saudi Arabia’s 41-Year U.S. Debt Secret

          How a legendary bond trader from Salomon Brothers brokered a do-or-die deal that reshaped U.S.-Saudi relations for generations.

          The basic framework was strikingly simple. The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.

          https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret

          Basically the way it works is that the US cut a deal whereby the House of Saud gets to keep a portion of the profits from selling their oil.

          The House of Saud honchos and princlings spend those billions on luxury cars, yachts, diamonds and beauty queens. Some of them drop E and snort high quality coke at Dubai nightclubs.

          Of course some of the profits go towards building massive airports, malls and other over the top infrastructure projects (all US companies involved) as well as the purchase of massively expensive US manufactured weapons.

          The rest of the cash (most of it…) goes to purchase US debt.

          Side note – this agreement is one of the prime reasons why Bin Laden made the House of Saud and the USA his enemies. He was also not so keen on oil money that should be retained by the people of Saudi Arabia was being used to buy high end ho-okers and blow….

      • R2D2
        Dec 3, 2019 at 6:44 pm

        To be fair, a gallon of inflation-adjusted US gasoline today in 2019 costs less than in 1919 and 1979, so oil has trended cheaper in the past century, even with OPEC in the background. And a barrel of oil today is still 10-30 times cheaper than a barrel of water (fizzy Perrier). It’s not all bad news.

        • nick kelly
          Dec 3, 2019 at 7:57 pm

          Tankers of oil have traded one for one for ordinary water in the ME. Not in usual circumstances.

          Related to main topic: Price of NG has declined 90 % since 2014. I knew it was down but had forgotten how much for how long. Got this via piece about Alberta giving a tax break to shallow gas wells. I guess there are about 60 K of them. Don’t think these are fracks.

          Given the apparently limitless supply of NG, I wonder how other energy sources for electric power can compete. The buses here (Nanaimo Van Isle) run on NG and I believe ferries also. The catch with NG in autos is that vehicle has to be big to allow storage of gas.

        • Dec 3, 2019 at 8:43 pm

          Yes, NG is a good, cheap, and relatively clean (compared to diesel) transportation fuel, especially for urban areas. The Ports of Los Angeles and Long Beach, with their suffocating pollution problems, have made major inroads into switching to cleaner fuels, including drayage trucks powered by liquefied natural gas (LNG) or compressed natural gas (CNG). There are plenty of “gas” stations in the area where the trucks can fill up. In the basic performance metrics in urban areas, LNG trucks or CNG trucks are roughly comparable to diesel trucks.

          There are lots of CNG buses in San Francisco and other cities. And to think that NG gets flared in some oil fields, such as the Permian. What a waste!

        • nick kelly
          Dec 4, 2019 at 11:25 pm

          ‘The problem for Appalachian drillers is that Permian producers are not really interested in all of the gas they are producing. That makes them unresponsive to price signals. Gas prices in the Permian have plunged close to zero, and have at times turned negative, but gas production in Texas really hinges on the industry’s interest in oil. ‘

          By Nick Cunningham via ZH.

          Prices turned negative? How is this possible? Do they pay to have it taken away? Why not just flare it?

      • Boss Tweed
        Dec 3, 2019 at 7:11 pm

        “They would be illegal and jailed in the US. ”

        Must be a different US than the one I live in.
        When was the last anti-trust case in the US? Last big one I remember was Microsoft, and the government withdrew the case after Microsoft began making large political contributions. And that is exactly the reason why we don’t see any anti-trust cases in the US. It can only apply to a company that is big enough to qualify as a monopoly, but which doesn’t buy the politicians that are for sale on every street corner. OPEC certainly has enough money to buy American politicians in bulk. In fact, we already know that at least Saudi Arabia and Qatar (plus probably others) already have.

        • Dave B.
          Dec 3, 2019 at 10:12 pm

          Right on the mark. USA, land of corrupt liars in power. Above any law the rest of us are held to.

        • wkevinw
          Dec 4, 2019 at 2:19 pm

          US anti-trust laws are difficult. You have to prove some kind of direct harm to customers- usually price fixing (price is too high).

          A re-work of these laws would be a positive, but don’t hold your breath (due to the lobbying by the usual suspects).

      • robt
        Dec 3, 2019 at 7:16 pm

        Nobody can ‘fix’ a price on oil, and crude oil may probably be the most dynamic and perfect market that exists. OPEC sets a price, members sell under the table too low, and OPEC periodically ‘resets’ the price according to the spot. And sometimes the spot is higher. This has been the history of the oil market since its inception the mid-19th century: boom and bust. The most idiotic analysis is from countries (like Venezuela) that feel the price is too low. If it were too low there wouldn’t be enough.
        Sheik Yamani from many years ago was an outstanding OPEC oil minister who used to lay out the facts, clearly, about the market.
        Naturally, he was canned.
        Oh, and we were running out of oil in the 1870s according to industry analyst Kellog at the time, who assumed that there was no oil outside of Pennsylvania and Ohio – and also in the 1970s according to the media – all to be gone by the 1980s. They took reserves and divided by the consumption per year.

      • Dec 3, 2019 at 7:16 pm

        “They would be illegal and jailed in the US.”

        Yep, just like the all those monopolists who run the medical industry here in the US, who have gone to jail and suffered so greatly.

      • GolferDave
        Dec 4, 2019 at 10:57 am

        US sanctions against Iran, Venezuala, Libya, Yemen etc.. are designed to limit supply and boost US shale oil prices. The policy is failing as China and India seek these supplies and indeed trade oil in alternate currencies.
        The market remains oversupplied and the price trend will continue down until all the marginal producers (frackers) go belly up…(see the natgas producers)

      • EchoDelta
        Dec 4, 2019 at 4:19 pm

        They would own more of our Congress and Executive Branch and judiciary and media than they do already. We LOVE corrupt cartels.

  2. raxadian
    Dec 3, 2019 at 5:11 pm

    Ugh… I am so tired I read a different F word on the title…

    Anyway, the shale oil scam continues to make things worse.

    Shale la shale la
    Shale la shale la
    shale lalala

    • Paul Easton
      Dec 3, 2019 at 5:31 pm

      In any case we are Fukked and we will Fry. So Fukken what?

      • Kraken
        Dec 3, 2019 at 7:13 pm

        I am glad I don’t have any kids. The massive greed of the current generations is literally creating a hell on earth for our children and grandchildren. And this generation laughs at what we are doing.

        • paul easton
          Dec 3, 2019 at 11:02 pm

          is better 2 laugh than 2 cry or 2 attack the environmental wackos such as u.

  3. 2banana
    Dec 3, 2019 at 5:14 pm

    Too bad Canada is not on that list (they should be).

    But their environmental wackos shut down every new pipeline for getting their oil resources to the world market.

    “Rystad Energy forecasts a supply growth of 2.6 million bpd year-on-year in 2020, led by US shale, Norway and Brazil…”

    • Dec 3, 2019 at 5:45 pm

      Most of Canada’s “environmental whackos” are indigenous tribes tired of have their lands being destroyed quite literally forever. Do a Google Earth of Alberta’s tar sands. You can see them clearly from space they’re so massive. Neighboring tribe’s water sources are ruined. Cancers not normally known amongst them are now becoming common. The Salish Sea, the ocean passage between WA State and British Columbia, normally sees one oil taker per week but if Trans Mountain pipeline becomes a reality that will jump to 400 a year.. Oil tankers leak. All pipelines leak. I think their right to protect what is life sustaining trump’s your need for cheap gasoline.

      • nofreelunch
        Dec 4, 2019 at 8:08 am

        Do a Google Earth of Ontario and see what nickel mining has done for the province. Given that nickel is a key ingredient of lithium cells, and many, many, more will be needed based on renewable “plans”, Ontario is in for far more devastation.

    • GolferDave
      Dec 4, 2019 at 11:07 am

      The first pipeline to be shut down was by the US oil interests (Keystone) masquerading as environmental wackos. The trans mountain pipeline was shelved by Kinder Morgan because it was uneconomic at current (and projected) natgas prices. Sorry, only conservatives in control at the time.

      If your looking for someone to blame for the glut… try looking at the frackers and Big Oils control of US Congress.

  4. 2banana
    Dec 3, 2019 at 5:16 pm

    There is much irony and humor in this statement:

    “and large involuntary declines in Iran and Venezuela this year…”

    I guess it is all in how one defines “involuntary.”

    • two beers
      Dec 3, 2019 at 6:37 pm

      “I guess it is all in how one defines “involuntary.”

      Here, allow me to help:

      “in•vol•un•ta•ry ĭn-vŏl′ən-tĕr″ē

      adj. Acting or done without or against one’s will.
      adj. Not subject to control of the volition.
      Not voluntary or willing; contrary or opposed to will or desire;
      unwilling; unintentional: as, involuntary submission; an involuntary
      listener.”

      To which I’d add,

      “subject to sanction, boycott, extortion, and fraud from the only
      remaining imperial superpower, which punishes any non-nuclear
      sovereign nation that impedes unrestricted petro profits.”

    • Che
      Dec 3, 2019 at 7:17 pm

      I do love the way Americans cry rivers that mean old Russia might have bought a few facebook ads during an election, while completely supporting having their country try to overthrow other governments in violent, armed coups. Might as well say the victim of a street holdup ‘voluntarily’ gave up their money.

      • ThePetabyte
        Dec 4, 2019 at 8:52 pm

        What does this have to do with OPEC price spotting and oil commodity supply? Any chance you can give some semblance of economic analysis? This site used to be full of insightful comments at one point, now I have to scroll through to avoid off topic ramblings like this.

  5. MF
    Dec 3, 2019 at 5:21 pm

    What happens if global demand stagnates instead of continuing its tepid growth rate?

    It’s hard to see how demand growth can be maintained in an environment where transportation and manufacturing are contracting. And now that EVs are being produced in market-relevant quantities, this will shift some demand to gas and coal.

    It looks like oil demand is a lot more elastic than it was ten years ago. It also looks like this is the new normal for oil. Who knows what that means for Saudi Arabia and other oil-based economies.

    • c1ue
      Dec 3, 2019 at 6:10 pm

      A couple points to consider:
      1) US oil production has increased over 4 million barrels per day since 2012.
      2) The world economy is still not doing well. Ongoing trade war between US and China isn’t helping.
      3) EV production is still insignificant. 2.5% of overall sales, but the US – the non-EV sales are skewing to gigantic trucks. Overall gasoline sales are still increasing. I suspect the change is mostly cosmetic: from individuals to delivery companies (i.e. Amazon, UPS, Doordash etc).

      • char
        Dec 4, 2019 at 8:12 am

        US is not only important. EU & China are both big on EV and EU has made the rules so that cars need to be much more efficient if you still want to sell vehicles in 10 years. And the engineering done for Europe will also be used in the rest of the world. So i expect a big reduction in oil consumption in the EU.

        • c1ue
          Dec 4, 2019 at 12:55 pm

          The above 2.5% is worldwide. And the advent of home delivery – food and goods – is likely increasing miles traveled per item.
          As I noted – if gasoline sales are increasing, then miles traveled is irrelevant. Either greater efficiency is offset by greater use or there are consumption sources not documented in current coverage (i.e. home delivery).

      • MF
        Dec 4, 2019 at 12:05 pm

        c1ue: That’s why I used the term “market-relevant”. When analyzing the margins (e.g.: whether oil demand will grow 1% next year or whether it will stagnate at current levels) the substitution of 2.5% of automobile gasoline demand with natural gas or coal is indeed a significant factor.

        Thus, market-relevant factors are:
        — Efficiency of the overall global vehicle fleet
        — Total miles driven
        — Other fuels that can be substituted for oil

        EVs, for the first time in automotive history, allow easy substitution of alternative fuels for people who use cars to commute to work. The adoption rates of EVs isn’t linear (in which case you’d be correct to waive them off as insignificant), they are exponential, which will significantly impact marginal gasoline demand.

        • c1ue
          Dec 4, 2019 at 12:58 pm

          Actually, the greatest limiting factor on EVs is the electricity grid.
          I’ve seen estimates that a major switching of the US fleet to EV – I want to say 50% EV but it could be higher – would increase US electricity consumption 60%. That is frankly not going to happen in less than multi-decade time scales – the distribution network as well as generation simply can’t do it.
          The 2nd factor is existing automobile lifetime. Existing cars are averaging 12 years on the road. Even an outright outlawing of new gasoline vehicles would require 12 years to switch out the cars on the road. Thus “exponential” only applies if you use decadal time scales and make many assumptions about infrastructure spending and deployment.

        • Briny
          Dec 4, 2019 at 2:57 pm

          The rolling blackouts in California are certainly going to complicate that forecast. We may be crazy here in California, but being unable to charge your EV for days at a time isn’t going to work out at all well in the Land of the Automobile.

        • Dec 4, 2019 at 7:50 pm

          Briny,

          Yeah, well, gas pumps don’t work either, nor do payment systems, or anything else. When the juice goes out, it goes out for everyone, not just EVs.

        • char
          Dec 4, 2019 at 8:01 pm

          I see numbers between 20% and 40% if all cars would go magical electric tomorrow, not 60% for half the cars . Advantage of the electricity demand for EV is that it can be done at night when there is ample supply and over such a time period that the electricity network can handle it. It is also a great excuse to upgrade that crappy third world network the US has.

          12 years is the average age of a car but not the average age per car mile. But in reality you want to know the median age per car mile. But you could also look at the number of cars on the road and yearly new sales. The total number of vehicles was 276 million, but that includes motorcycles, buses , 114 year old T-fords etc., 19 million is about peak yearly sales so less than 15 years is a conservative estimate to do all cars or 10 years with easy if you look at real personal transportation vehicle with 4 wheels in real use (my estimate around 200 million) and production of 20 million per year. But that is only when battery production is high enough.

  6. Jason
    Dec 3, 2019 at 5:30 pm

    72% long USOIL at the end of last week on IG. 67% now.
    Sell the pops, but patience is going to be needed to ride this down.

  7. DR DOOM
    Dec 3, 2019 at 6:10 pm

    Get’er done, add another 2 feet and 20 hoss-power to the F150 and extend loans out 10 years. I gotta see a $100k truck.

    • Tom
      Dec 4, 2019 at 7:51 am

      I agree. Get rid of that short box, and bring us back the long bed.
      I’ll pass on the 100K. My old 7.3 keeps on going. A little more rust
      each year, bullet proof engine.

  8. Unamused
    Dec 3, 2019 at 6:27 pm

    Okay, I get it.

    US shale oil producers are continuing to push production to new highs – even though they’re losing money – while pushing the rest of the world to cut production to screw themselves – even though their operations are profitable.

    It would seem the US is conducting economic warfare against other oil-producing countries, including its erstwhile allies, using weaponised petroleum. Mayhaps a bit of digging would show that US frackers are getting their financing from DoD, which has endless fiat vaporbucks to burn, so to speak, channeled through ‘investor’ proxies.

    Stay tuned.

    We get our oil, maybe a couple of gallons a year, from a boutique rock oil producer who would be mortified that we don’t use it for things like therapeutic massage like his other customers. Some of it we mixed with lithium soap to make grease to repack the wheel bearings on the Bentley. The Citroen’s just fine so far, thanks.

    • Cas127
      Dec 3, 2019 at 6:34 pm

      “Mayhaps a bit of digging would show that US frackers are getting their financing from DoD, which has endless fiat vaporbucks to burn, so to speak, channeled through ‘investor’ proxies.”

      Not as absurd as once may have been thought.

      And probably one of the few actually useful uses of QE money printing.

      • Unamused
        Dec 3, 2019 at 6:59 pm

        Not as absurd as once may have been thought.

        Facts, man, facts! How is my newly-conceived conjecture ever going to grow up to become a full-fledged conspiracy theory without a couple of distantly-related facts to feed it? I want something to be pig-headed about too, dang it.

        OilPrice has another article which is also interesting: “The Superpowers Battling Over Iraq’s Giant Oil Field”. Once the smoke clears there you could be looking at $30/bbl oil, which could get very expensive for whomever is financing US petro loss leaders.

      • Willy Winky
        Dec 5, 2019 at 2:02 am

        ‘And probably one of the few actually useful uses of QE money printing.’

        Exactly! If not for QE and the huge amounts of cash sloshing around then fracking would not be subsidized.

        And the fracking companies would have collapsed long ago.

        And all that oil that the US produces – would not get produced.

        And civilization would have ended roughly a decade ago

    • Tyson Bryan
      Dec 3, 2019 at 8:47 pm

      The petro dollar worked well enough in the 20th century. Time to move on to the “vaporbuck”.
      Thank you for coining this new unit of denomination. It certainly fits current circumstance as the latest evolutionary form of the dollar.
      The “carbon credit” is now 10 – 12 years old. As you know, the carbon credit is a reverse CO2 “credit” based on the false premise that CO2 is a climatically destructive gas.
      So far, there is no developed market use for the carbon credit. This is mainly because its polarity is reversed in relation to all other currencies. It is presented as a debit instead of a credit.
      Maybe a complete polarity reversal is due. Why settle for a simple currency reset ?
      The vaporization of the USD into CO2 may be the solution we’re looking for.

    • Lisa_Hooker
      Dec 4, 2019 at 11:33 am

      Why, oh why, do I just assume that your Citroen is an SM?
      (And not a DV ;-)

  9. Paulo Zoio
    Dec 3, 2019 at 6:34 pm

    Aramco IPO at this juncture is not innocent. Saudi Arabia knows the end is near or, at least, hard times are coming…

  10. John
    Dec 3, 2019 at 7:42 pm

    Hey wolf, interesting. A lot of variables. Still need it. Refiners too. Rates lower forever? Financialization and the fed was interesting. EV quick chargers? Iraq and Iran, price premium in oil and China and trump, leverage might come out, but I’m staying long and strong so they can pay me. Just don’t know. Wall of worry. Thanks wolf! Too many other variables left out of article.

    • Dec 3, 2019 at 8:28 pm

      John,

      Whatever happens next year in the oil sector, EVs won’t make a noticeable dent. There are about 275 million ICE vehicles on the road in the US and a few hundred thousand EVs. Even if EV sales boom next year, and an unthinkably large number are being sold, such as 1 million, they still would not make a noticeable dent into oil consumption — they’d make up about 1/3 of 1% of the total US passenger vehicle fleet. And that doesn’t even count the fuel consumed by the transportation sector, such as trucks, aircraft, and barges. So you can take EVs off your list of major variables for the oil market in 2020.

      However, they will grow to be a noticeable variable in 5 or 10 years. Replacing a significant part of the US vehicle fleet is a very slow process.

      • Dec 4, 2019 at 10:45 am

        Ev’s could become a larger share of autos on the highway if gasoline were to double in price. That would probably result in a fast spike in NG prices, and electricity. The Arab Embargo of the 70s took a lot of gas guzzlers off the road.

        • Dec 4, 2019 at 1:23 pm

          Ambrose Bierce,

          Yes, if there is a price shock, with gasoline prices doubling, we will see a surge in EV sales. So maybe 3 million EV sales a year. At which point, EVs would become a little over 1% of the total fleet after the first year. If this continues for a few years, EVs might reach 5% of the total fleet. That would have a very noticeable impact on oil consumption in the US, which would likely crush the price shock :-]

      • Greg Hamilton
        Dec 4, 2019 at 1:14 pm

        Wolf,

        My question is why the push for continued CAFE standards for cars and light truck if the oil price continues down? Also why is there a huge push by governments around the world for EVs when oil is in abundant supply?

        • char
          Dec 4, 2019 at 8:13 pm

          Supply is (possible) abundant but in the hands of the enemy (USA):

          Chinese answer.

          CO2:

          European answer

          imported:

          Central bank answer

          We need to be able to sell our cars in high gas price countries:

          Should be the answer of the USA. But killing GM and Ford when oil hits $100 again seems the objective of their stakeholders.

      • Wes
        Dec 4, 2019 at 5:00 pm

        Good analysis Mr. Richter. If my understanding is correct it will be Europe who will have the fastest % growth in EVs due to their progressive CO2 grams per kilometer regulations. Vehicles that do not comply (especially diesel) will be penalized with a fee i.e. 1,000 or more Euros per vehicle etc.

        • char
          Dec 4, 2019 at 8:19 pm

          China is likely to grow faster as they are in front now. 1000 Euro’s is not a lot of money when you buy a car in Europe but it is more the stick to point at the bigger stick the car makers fear

    • Kasadour
      Dec 3, 2019 at 10:45 pm

      Not to be too picky but the claim that the US is or was ever a net exporter of crude oil can only be made when factoring in finished refined petroleum products- which are not crude oil. These finished products include some products that are refined or produced with imported oil. Another point to consider is that U.S. consumption is still 2.1 million bpd above overall production (including products) and that itself negates the “net exporter claim”.

      What can be said about oil price-it’s subject to supply and demand- is probably the last commodity traded in a free, open market that isn’t rigged or manipulated (yet) in a manner similar to the way JPMorgan criminally rigged gold and silver markets for years. It seems that addressing and fixing the underlying cause of this chronic demand destruction (global glut, price declines) is a more efficient way to stabilize the price. It’s unfortunate thought that oil producers indebted themselves to the point that even the smallest price decline renders them insolvent.

      • Dec 4, 2019 at 2:00 am

        Kasadour,

        No one outside of a refinery consumes crude oil. It’s useless the way it is. It only becomes useful when refined into petroleum products (value added).

        So the US imports crude oil, refines it, for example, into gasoline or diesel (value added), and exports this gasoline to Mexico, which is exactly what is happening. So the US imports more crude but it exports more value-added gasoline (petroleum product). And so yes, “net exporter” of crude oil and petroleum products is correct. And in terms of dollars, which is what matters the most, you’d rather export gasoline (value added) than just crude oil. Think about it!!

        Also don’t make the mistake many people make of comparing US consumption of “crude and petroleum products” to US production of “crude oil.” That’s apples and oranges because what comes out of a well is “crude oil and petroleum products” – all valuable hydrocarbons — in addition to separately counted gases.

        Instead compare US consumption of “crude and petroleum products” to US production of “crude and petroleum products.” And in this comparison, you will see the net result of what is really going on.

        • Kasadour
          Dec 4, 2019 at 5:02 am

          I get that. I see and appreciate your point and it’s a valid point. My point is that when a headline reads “U.S. a net crude oil exporter” and four paragraphs down it clarifies to include all finished petroleum products in that figure, it rings mildly disingenuous because refined finished product(s) and crude oil are different. They’re treated different, handled different, priced different, stored differently, traded differently, processed differently because they are different. In the interest of accuracy, the U.S. is a net petroleum exporter. This is demonstrated in crude oil consumption/production figures posted in the Weekly Petroleum Status Report; expressed in barrels, and do not appear on the same spread sheet as refined or finished product. when expressed in dollars, I agree with it, it’s all the same and that’s the more important takeaway. Or should be.

        • Dec 4, 2019 at 9:13 am

          “U.S. a net crude oil exporter” — WOLF STREET headlines NEVER said that. Bloomberg’s headline said that a few days ago, and that was wrong — I totally agree with you. I saw that headline and cringed and I was going to write Bloomberg about it but then figured, forgeddit.

          Here is my URL on this topic a few days ago, and it defined in the FIRST paragraph what “crude oil and petroleum products” means:
          https://wolfstreet.com/2019/11/29/us-becomes-net-exporter-of-crude-oil-petroleum-products-for-first-time-but-energy-independence-is-complicated/

  11. Haggis
    Dec 3, 2019 at 8:47 pm

    I’m in Saudi and we are trying to get another SBM online for Aramco.

  12. HR01
    Dec 3, 2019 at 10:14 pm

    Further cuts? Not gonna happen. Nearly all OPEC members have to pump as much as possible. Debts have to be serviced after all.

    • Kasadour
      Dec 3, 2019 at 10:55 pm

      I completely agree with this. To add to your comment, how could anyone independently verify that the Saudis are adhering to production limits? None of these oil producing nations trust each other. And if some or all of these oil producing cartels are cash strapped the temptation to cheat would overwhelm them.

      • Briny
        Dec 4, 2019 at 3:21 pm

        If you can’t trust commercial shipping data, I’d turn to the DoD. They’ve been tracking shipping since the early to mid ’80’s. I used to be in the Pacific and looking at all ships of any significant size in the Mediterranean on the console on my destroyer.

        Kind of interesting that we “lost track” of that Iranian tanker that supposedly dropped its oil off in Syria. Riiight.

    • KGC
      Dec 4, 2019 at 12:53 am

      Russia too cannot afford to cut production, especially if prices drop. They have been borrowing for years to balance a budget based on a price of $70/bbl, and doing everything they can to keep their public focused on anything but the economy. If Putin should ever drop dead (like Julius Caesar most likely) his lack of a successor and the state of the economy could well reshape the map.

  13. Sinbad
    Dec 4, 2019 at 12:31 am

    Whatever happened to the free market?

    Surely the price should drop until producers with high extraction costs go broke, leaving the market to whoever can supply at the going price.

    Charts that factor in Government taxes and subsidies are misleading, only the cost of production should be considered, not social and bankers welfare.
    As for Russia cutting production to save high cost producers, I just can’t see it happening. Why should Russia reduce its income, when it would still be profitable at $30 a barrel?

    • HR01
      Dec 4, 2019 at 7:14 pm

      Free market? Went the way of the dodo some time ago.

      No company (that matters) is allowed to go bust. Witness Chesapeake today getting another $1.5 B loan to keep them going a while longer.

    • char
      Dec 4, 2019 at 9:42 pm

      Because 8 million barrel at $60 is more than 10 million barrels at $30

  14. WES
    Dec 4, 2019 at 12:32 am

    Well, look on the bright side!

    It will be better for the average Joe living on main Street trying to make ends meet!

    And lower carbon fuel prices will hurt EV sales too!

    What is there not to like! /s

  15. nicko2
    Dec 4, 2019 at 2:01 am

    New solid battery chemistry breakthrough in Australia doubles (with potential up to 5x) capacity vs. Current batteries. These innovations are happening on a monthly basis. From 2020 battery powered vehicles are mostly on par with ICE. The revolution is happening. Almost forgot, innovation in wind and solar also accelerating – proces plummeting.

    • David Hall
      Dec 4, 2019 at 4:56 am

      I read the price of electricity in Germany is rising as they try to go to 100% renewables. Wind and sunshine are intermittent.

      There is undeveloped shale abroad. At first geologists thought California could be fracked. After further study they realized there was better shale elsewhere.

      Temperatures are rising. Mountain glaciers are receding. Sea level rise is not a hoax.

    • Briny
      Dec 4, 2019 at 3:35 pm

      Daily basis, really. I read all the papers on renewables and energy storage as they come out, along with quantum physics, over several hours each night. The problem remains, no matter how good a particular technology looks (46% efficient solar cells or molten salts energy storage, for instance), you still have the problem of commercializing it which involves funding and about five to to ten years of serious development. Graphene is a prime example. While we are still finding new and novel (wonderful) uses for it, it took a good five years just to figure out how to produce it in reliable, near defect free sheets in commercially usable quantities. The British were the ones to come up with that. Essentially an inkjet printer!

  16. Rob
    Dec 4, 2019 at 5:58 am

    Dont forget permiam pipeline capacity will go from 4.5 to 8MMbpd by the end of 2021…

  17. michael earussi
    Dec 4, 2019 at 10:44 am

    Something to ponder:

    Regardless of whether you believe in Global Warming or not, that belief is causing the world to gradually decrease its dependency on fossil fuels and therefore the Middle East, which will become less and less important in geopolitical terms.

    Eventually neither the U.S. or Europe may care what happens there and decide that none of the Middle East countries are worth supporting militarily, allowing them to fight it out on there own without taking sides. This will totally reshape that area.

    The present shape of the Middle East has been created by the West’s need for oil over the past 100 years. What will it look like when that need no longer exists?

    It may take 20 years or more before the full impact of this occurs but it will be a bumpy ride for those who live there.

    • Lisa_Hooker
      Dec 4, 2019 at 11:47 am

      It’s been a bumpy ride for the ME since Alexander defeated the Persians. Except for a few hundred years of Science before repeated Crusades began terrorizing operations. Been bumpy since.

    • Lune
      Dec 4, 2019 at 5:20 pm

      “What will it look like when that need no longer exists?”

      Straight from the horse’s mouth:
      “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel”
      –Rashid bin Saeed Al Maktoum, former Emir of Dubai

  18. Dec 4, 2019 at 11:01 am

    Should corporate debt collapse the narrative changes. (It won’t) When Jerome monetizes, he monetizes for all. US supplies bulge, E&P shuts down and price swings violently the other way.

  19. Lisa_Hooker
    Dec 4, 2019 at 11:52 am

    I feel confident that all this concern about oil will become moot as soon as we have intercontinental travel by electric ships and electric aeroplanes. 2030? 2050? 2500? Never? Then again why not nuclear-powered cruise ships for all. The ICE is not going away, it’s a pretty nifty invention in all it’s forms.

    • Kasadour
      Dec 4, 2019 at 12:08 pm

      Oil is way special. Nothing like it on the planet!

  20. Udo
    Dec 4, 2019 at 4:19 pm

    So US gets to produce all the debt-financed environment-destroying frack it can muster, but it’s the responsibility of all those “evil and corrupt” OPEC+ countries to cut back and keep deep-state Oilprice.com happy. Gotta love the gringo weltanschauung.

    • Dec 4, 2019 at 7:48 pm

      “responsibility”????? who the heck said anything about “responsibility?”

  21. Willy Winky
    Dec 4, 2019 at 11:36 pm

    If the price of oil drops too low, for too long, oil producers go bankrupt.

    If it goes to high, for too long, inflation skyrockets, the consumers consume less, and we get a recession.

    The problem right now is that the price that producers need to turn a profit (and pay dividends, royalties, taxes and invest in R&D) is far beyond what the consumer can afford.

    The consumer has been taking on epic debt as he fights to continue shopping, however there are limits to this.

    Even with very low interest rates eventually most of your take home pay goes towards debt servicing and in the words of Roberto Duran the consumer at some point says ‘No Mas’

    And then it’s game over

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