Bill Blain: "Oil Could Change Everything"

Submitted by Bill Blain of Mint Partners

Blain's Morning Porridge: A Short Distraction In The Oil Market

Did I detect a distinct change in the market wind yesterday? There is a new freshening blow out the East. It feels like the world is changing: a slide in tech stocks and a wobble in sentiment, stronger oil prices and all the noise about Germany and where that leaves Europe, and Macron’s France’s dreams of Empire closer union.

Of course we still have all the usual worries, like North Korea saying Trumps twittering gives them carte blanche to shoot down American planes – which, to be honest, is unlikely because nobody is really that stupid… are they? And as Trump plays to red-neck sports fans, we also saw the death knell spike delivered on Obamacare reform. Then there is Spain vs Catalunya – perhaps a topic we should pay more attention to. And I think there was probably more news about Brexit, but to be honest I wasn’t paying attention and could not be ar**d to read about it. Bored of it. Get on with it.

As always, there is so much to think about.

Oil is one I’m watching closely because it’s the global commodity and market price that could change everything.

We’ve been arguing across the desk these past few years about whether $55-45 is the new normal range for oil, or do prices revert back towards $100? Some argue a stronger global economy means higher prices, others that the demand and supply dynamics have so fundamentally changed that a lower long term range is nailed-on for decades.

In this current rising oil phase – highest levels in over 2 years - prices have been driven higher on a number issues: concerns about Kurdistan supply (a whole can of worms in itself), OPEC generally sticking to cutting production, an uptick in anticipated demand from Asia and China in particular as it builds reserves, declining stockpiles, and the general sense the world is in recovery. That’s a long-term plus: as the global economy has “recovered” we’ve seen oil demand expand about 1.9%, while supply has lagged at 1.1% expansion. I’m seeing expressions like “rebalancing”, “turning a corner” and “price reversion” in the reports.

The fact China is supposedly building up strategic reserves as a hedge against future energy stocks is fascinating. But that’s a strategic rather than market issue. The FT reports one oil trader saying “China has helped to clean up the glut.”

Meanwhile, Bloomberg are looking to backwardation in the oil futures and predicting a potential scarcity of supply by 2019, quoting Citicorp reports on weak investment in new drilling. These sound like arguments for a higher long-term price – and all the implications that will have on global inflation.

But, the oil equation is a particularly interesting one in light of the “new-oil” revolution of the 2000s identifying new more efficient production methods and new sources – of which fracking, oil sands and shale were just part. The cost of oil has changed dramatically. In recent weeks we’ve seen US oil stocks back in vogue and a bright spot in stocks – they weathered the price crash, cut costs to the bone, and can now pump out as much oil as America needs at a far lower swing price.

Energy exports are underway – putting the US head-to-head with OPEC and its allies. The fact the US can profitably turn on the gas spigot whenever they like means they stand to benefit from any rally, and stem it. That puts the oil-funded spending junkies of OPEC at a chronic disadvantage. The old strategic oil imperatives change dramatically now the US is oil-independent and offering to supply core allies.

Of course there is always a rogue element in oil – for instance Iran, coming back on line after years of sanctions and able to produce at cheapest levels, while Saudi is so broke it just has to produce..  

As a story, oil has further to run. The issue for markets is how dramatically will higher oil prices impact inflationary expectations in the current rosy Macro world-view? That could solve the lack of inflation at a stroke – but probably push stressed full employment economies like the UK into stagflation.


TeethVillage88s Sep 26, 2017 9:37 AM Permalink

Take you suit case full of the shit you are peddling back to DC.

"...That could solve the lack of inflation at a stroke – but probably push stressed full employment economies like the UK into stagflation."

- Fake Stats & Fake Economics, you are brain-washed
- Yeah, sure G20 has full employment at full labor rates and full time hours, you fuck

WTF? I guess you are main stream and in the FIREs industry... need your career, huh.

Let me just pull affordable Army, affordable health care, affordable retraining out of my ass!

Grandad Grumps Sep 26, 2017 8:59 AM Permalink

Now that it is known that the wells in Texas and the middle east are refilling ... somehow, the whole "we are running out of oil scare" has lost its power. The same will hold true for water when they try to convince us that a wor;d that is 3/5th water is running out.

LawsofPhysics Sep 26, 2017 8:55 AM Permalink

Could?  LMFAO!!!  Oil, (consumable calories and reduced hydrocarbons) has already changed everything!!!What the fuck is this? A way back machine? Fucking moron.  Bring on the fusion reactors already!!!  Hey Bill, talking about the "price" of anything in the absence of a mechanism for TRUE PRICE DISCOVERY is fucking stupid, you dumb fuck.

NoDebt LawsofPhysics Sep 26, 2017 9:10 AM Permalink

All this talk about oil maybe going back up to the $100 range for any significant period of time strikes me as wishful thinking by somebody who's long oil.I know only a few things with any certainty:1.  OJ will kill again.2.  The national debt will never be paid off.3.  Oil is going to cost what it costs the marginal producer to pump it out of the ground.  And the marginal producer is now the US.  

In reply to by LawsofPhysics

Mr 9x19 NoDebt Sep 26, 2017 12:34 PM Permalink

it cannot go above 75$ long won't.told you ...too high = killing world economytoo low = oil companies under subsides and oil economies collapsein both cases world economy declining anyway.there is no solution. our world energy is a dead end. the big trusts will never let the revenues evaporate to give whatever new tech could fix the situation.the biggest exemple of the scam continuity is the EV market. in 30 years you do not even have 3% energy is based on fossil ressources, never forget.

In reply to by NoDebt

fx Mr 9x19 Sep 26, 2017 6:11 PM Permalink

So, Bill Who? talks about the US being "oil-independent". LOL. When exactly did that happen?Next thing you know, he confesses that he "misjudged" the German electoral situation. Well, the electorate delivered exactly the vote that had been anticipated by polls for at leat the last four-eight weeks. And none of the parties involved has changed any major position on any major issue. So how on earth can this guy now be suddenly suprised and worried?Why does he even post this crap? I would feel embarrassed if I were him.

In reply to by Mr 9x19