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Oil prices head into a warning triangle again

Oil markets
By Paul Hodges on 28-Jul-2024

Since then, they have again formed a major “triangle shape”.

  • OPEC+ output cuts since Q4 2022 have allowed US production to rise 9% to a record 13.2mbd
  • And so OPEC are again nervous about their loss of market share to higher-cost US producers

US RECESSIONS AND THE OIL PRICE

  • Oil prices now represent 3% of global GDP, based on latest IMF data and 2024 forecasts
  • This level has been linked with a US recession on almost every occasion since 1970
  • The exceptions were post-2009 when China and the Western central banks ramped up stimulus
  • This created a debt-financed bubble, but today’s rising interest rates mean the bubble is starting to burst

“History repeats, but it doesn’t rhyme”, as US writer Mark Twain reminds us. And whilst it’s tempting to assume August 2024 will be the same as August 2014, Hurricane Beryl reminds us that life may not be that simple.

As noted here earlier this month, US weather agency NOAA is forecasting the number of Category 3+ hurricanes could double this year. That would take US Gulf oil rigs offline as their crews are evacuated.

And so in the short-term the weather may well play a role in supporting oil prices.

But beyond this, from a Scenario Planning perspective, former Saudi Oil Minister Sheikh Yamani’s warning in 2000 looks increasingly prophetic today:

“30 years from now, there will be a huge amount of oil – and no buyers. 30 years from now, there is no problem with oil. The Stone Age did not end because the world ran out of stones, and the Oil Age will not end because we run out of oil. I am a Saudi and I know we will have serious economic difficulties ahead of us.

“As King Faisal said in 1974, ‘In one generation we went from riding camels to riding Cadillacs. The way we are wasting money, I fear the next generation will be riding camels again’.“