Maybe Oil Will Now Get Its Rise

We are thinking that this previous post (link here) has a decent probability of happening now.


 ** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**

WAR (and nothing short of it) Will Raise Oil

Six months ago, OPEC and some non-OPEC oil producing countries agreed to cut production in order to raise the price of a barrel of oil. The main reason for this is that in just 8 short years, the price of oil has fallen from $130 per barrel to now just under $50 per barrel . But six months into the process, oil producing countries and companies are starting to figure out just how tough this endeavor will be. Countries and companies alike have shut down production to their economic limits and have found that this has not raised the price of oil enough to their satisfaction. The continued pressure on the price of oil is both a supply and demand issue. Some of the problem can be attributed to more oil having access to get to the market. Also, the demand algorithm around the world for oil is changing with sustainable sources grabbing an increasing larger part of the market.  

Not 10-15 years ago, the world was of the opinion that the oil supply would likely be used up in a couple of generations. Prices were over $100 per barrel for more than a few years. Is anyone familiar with Hubbert’s theory of “Peak Oil”? This first gained major traction in the 1970’s and again in the 2000’s as the price of oil reached over $100 per barrel. The main issue that constricted the supply of oil were the wars in Iraq and Afghanistan. It removed them from the marketplace. Also restrictions on Iran also left their oil generally off the market. Now that both Iraq’s and Iran’s oil is back on the market, prices are falling. Also, when the market was riding $100 per barrel, the US market has increased production with the Dakota Bakken fields now reaching the market. Now, without conflict removing oil from the market, and increased oil production capabilities with shale in the US and around the world, oil will likely continue to have a high supply.

While demand has still increased, it has increased at a slower rate than expected. The reason is mainly that the demand has been stunted by the growth of renewable sources of energy. It is getting hit with vehicles on a growing macro level. I touched on this in an earlier post (here). This success has spawned new technologies in other industries to find out new non-oil ways of manufacturing.  

This all leads to the reason behind the post. The only likely action that will successfully bring back the price of oil to higher than $50-60 per barrel is war. War between countries creates a situation that restricts supply and kicks up demand. It is not a coincidence that the price of oil dropped considerably as military operations in the country slowed down starting in 2008. Supply increased and demand from the US military declined. Most of the big oil producing countries (Russia, Saudi Arabia, Iraq, Iran, Kuwait, etc.). are dependant on oil for their GDP growth. While there are areas of the United States that are dependant on oil, the country as a whole is diversified enough to handle the downturn in prices. These countries should be watched carefully over their behaviors in order to raise the price of oil. One important lens that needs to be used when analyzing certain countries actions is the “price of oil” lens. If these production cuts don’t raise the price, watch out for the bombs.  

Capitalism Wins Iran Deal, Not Politics

by Michael Keane

In the end, the lure of capitalism and wealth won over both sides when it came to striking a deal in Iran. There are many Fortune 500 companies like GE, Apple and other global companies that will benefit from Iran’s government opening up their markets. Iran now can also have the ability to sell more oil. Because so many people depend on the profits that these companies and commodities provide (including you and I), the benefit could not be ignored by either side or stopped by the extreme elements of each side. That is not to say that things can’t change. But it will take extreme measures in order to do so.  A link to the Wall Street Journal article is here.

The opponents of this bill will both yell and demand changes, especially the political figures. But one thing they will not do is sell shares of the companies involved in the trade aspect of the deal as they (and everyone else) know that the new market will provide profit and wealth growth. They will not even mention the economics of the deal. That is a clear indication that there will not be enough teeth in the bite to change the deal. There will be lots of positioning on the political side, but hardly any action.   

Trade and Commerce have been given an opportunity to thwart hard line patterns and create a higher level of peace. Let’s work towards pushing this forward in a responsible way as shareholders and continue promoting the benefits while guarding against the greed that Trade and Commerce can create. 

Opinions are that of the author and are not to be taken as to take action for or against any organization or person mentioned in the article. The Twitter handle is @keanevcc and the facebook page is KeaneVCC.