More Proof That I Am Right About The Price Of Oil/Gasoline

[paleotn]

19. It's complicated.....

Supply and demand still works. Oil as a global commodity is bigger than a rapidly aging, orange bloviate who may not be around tomorrow. This is an industry that thinks overall in time frames much longer than our usual weeks and months. Decades in some cases. And Donnie is but a blip in that time frame. He may be gone next month or in 6 months and the whole DC paradigm changes. Who knows? Certainly can't plan long term based on his rapidly diminishing longevity.

Oversupply right now is a function of ....

- Improvements in fracking. US oil producers have gotten extremely good at squeezing more oil from fields that would even be considered 20 years ago.
- Global economic downturn, partially driven by tariffs interrupting global trade. Strip away the AI build out craze, and the US economy isn't doing too well either. Lower economic output means lower demand for oil. If there's a pull back in the AI build out, it's going to get ugly.
- Canadian tar sands going gangbusters at $70 + oil that's well above their comparatively high cost per barrel. Heavy oil feeding the US market whether Donnie likes it or not. Also, Canadians can't talk about climate change without a lot of embarrassment.
- And OPEC, particularly Saudi, making up the difference for much of Russia's oil being off the market due to Ukraine. There's debate as to how much the shadow fleet can even transport. Probably not much compared to pre-war levels. But it's something and that keeps Russia's war economy somewhat afloat. Ukraine smashing up Russia's oil infrastructure is certainly a serious poke in Putin's eye, but it doesn't really impact the global oil market all that much right now. If Ukraine does a deal, Russian oil may be back on the market in mass. Oil prices aren't just a measure of where we are now. They also contain a guesstimate of where we're going.
- And expansion of the EV market and its obvious impact. Even Toyota, who initially wanted to stick with hybrids, is going full tilt into EVs.

Oil is down now, but not for long. As prices decline towards various producers cost per barrel, the players will turn the spigot down. They can't afford not to. Profit makes the world go around, so fill your tank up now. It ain't going to stay at these levels for long. For purely selfish reasons, I hope it spikes again just in time for the 2026 elections.

The driver here is cost...

- US fracker's cost per barrel is ~ $40 to $50. Get close to that threshold and they're making no money and can't service their debt. They do not want a repeat of the 2015 bust or the covid debacle.
- Saudi has the lowest production cost of anyone, but that doesn't take into account what that regime needs to keep its populace placated. They need something around ~$70 to $90 per barrel and they've had to tap debt markets recently to keep their budget solvent. MBS can't afford this for long and he'd like to be around long after Donnie is worm food.
- Canadian tar sands is perhaps the most expensive to produce and they are not the least bit happy with this slide in price. And it's their heavy oil that feeds US refineries that were designed to use it. Venezuela produces heavy oil too and that's what's driving Donnie and his minion's focus on them. Do a regime change, drop the sanctions and they can get Venezuelan oil back on the market, directly benefiting the US. But the industry as a whole will react less than favorably, turn down the global spigot and we're back to $70 to $90 oil. But that's cause and affect Magats don't fully understand.

As I said, it's complicated. So enjoy for right now, but don't expect it to stay here for long. Some interesting takes...