The USA economy is helped by lower oil prices from the Permian Bassin. OPEC, around 2013, flooded the world with oils, causing bankruptcies in new oil companies and natural gas in the USA and most of the world. When OPEC flooded the world with oil, the prices of oil stayed low and the new oil finds were more expensive to drill (results in bankruptcies to many US companies).
- Venezuela Oil
- Oil Reductions
The energy market and broader U.S. equities. Oil is often viewed as a proxy for expectations of future economic growth because as activity increases, demand for the input rises. So, what’s going on in the closely followed energy markets on Wednesday?
WTI crude is up roughly 1% and now trades around the $54 handle as the market continues to digest the ramifications of the sanctions imposed by the United States on the Venezuelan state-owned oil firm PDVSA. To help get a better picture of the energy markets, on Monday night Jim had the opportunity to interview RBN Energy President and Principal Energy Markets Consultant Rusty Braziel on Mad Money, and he asked him several questions related to the sanctions, natural gas, and where oil prices may head next. (Here)
As a quick highlight, Braziel said the impact of the sanctions would be “small” and “not a big deal” because the Permian Basin produces a far greater amount of oil compared to the amount the U.S. imports from Venezuela. It seems that the barrels taken offline by the sanctions could easily be replaced by either the Permian or perhaps even OPEC members looking to regain share amidst their recent output cut.
Looking ahead to where oil may go next, Braziel offered his thoughts based on the oil futures curve. Previously, Braziel has used the curve as a predictor of whether a spike higher (or lower) was real or temporary. To that point, Braziel spoke about how the volatile moves to both the upside and downside in late 2018 were not received with follow through in the oil futures curve. “In other words,” Braziel said, “the market has recognized that it was never going to be $70. It was never going to be $40, $42. It’s going to be bouncing back and forth between some number around $55 or $60.” (Here)
Remember, the price of oil may be stuck in a range until we get an event that would improve (or worsen) expectations of future economic growth. The most closely discussed catalyst would be a resolution on trade with China, and high-level talks between the two nations resume today.
According to the World Energy Outlook Report:
Oil use for cars peaks in the mid-2020s, but petrochemicals, trucks, planes and ships still keep overall oil demand on a rising trend. Improvements in fuel efficiency in the conventional car fleet avoid three-times more in potential demand than the 3 million barrels per day (mb/d) displaced by 300 million electric cars on the road in 2040.
It’s noteworthy when a long-term projection calls the top on demand for something as fundamental as a component of global oil demand. But demand for oil consumed for transportation is already waning in certain markets and segments.