Pundits warned you that oil markets were terribly constrained and could easily undergo a supply disruption.
What actually happened was demand cratered globally creating a supply glut. We’ve had a 30 million or so build of barrels (that we know of) within 2 months, and it doesn’t look ready to let up, creating the most excessive inventory in over a decade. And demand is still falling.
Pundits warned you that Iran would escalate tensions in the Hormuz straight, leading to those supply disruptions, as war slowly broke out in the Middle East, sending the price per barrel to $150.
3 US Naval Carriers accompanied by untold support vessels and crippling sanctions later…not so much. It looks like Iran is at least putting on the show of brokering peace, as their face saving rhetoric barely conceals the panic their ruling clerics must feel every time they see prices of goods; or worse, the Iranian people’s reaction to the prices of goods.
Anything else punditry fucked up on?
I can think of one major issue: Japan.
At the moment, recall, Japan has idled their entire nuclear reactor capacity, opting to supplement the lost power infrastructure on imported carbon sources. The primary secondary fuel for this process has been oil. If that sounds stupidly expense, that’s because it is.
This summer, Japanese ministers and power companies have warned of rolling blackouts countrywide, as these methods fall short of peak demand. Before the tsunami struck the nuclear plant last year, causing widespread panic and the nuclear ban, Japan got >25% of its power production from nuclear.
This is going to force the Japanese’ hands. They will turn those power plants back on. It was crazy to think they could pivot away from such a key component of their economy so quickly. I mean, they’re an island, for God’s sake; it’s not like they have access to plentiful selections. And when the world’s 3rd largest country recants their recklessness, their need of crude imports for power generation will fall equivalently.
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On a total $ amount of imports, yes oil is their biggest source. But coming off a low base, LNG use is rapidly growing while oil consumption is pretty much flat.
So their oil demand isn’t growing. But I think it’s going to drop off – their natty growth also.
It just doesn’t make sense for them to completely abandon nuclear energy. I thought for a minute maybe the Japanese culture would triumph over the pressure – in my own dealings with Japanese owned companies, they can be a little bull headed.
But seeing the government officials coming out actually saying “hey, this has consequences, we’re going to have trouble keeping the grid running optimally.”…they’re going to cave in.
Is the overall global demand for oil actually falling or is it just the growth of demand that’s falling?
Roughly when and at what level do you anticipate the price to bottom?
Thanks!
Good question. Looking at gasoline consumption and EU manufacturing, I’m going to say the demand for oil is really falling.
But that’s just a guess. Places like China are still running higher – allegedly.