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Crude Oil at $190 in 2025? It’s Not Insane
By Shlomo Maital
Recently, at the height of the pandemic panic, the price of crude oil was actually negative. That is: “I’ll pay you to take a barrel of crude.” Why? Demand collapsed, all the storage tanks were full – and shutting down production was exceptionally costly.
Now comes a serious report from investment bankers JP Morgan, “Supercycle on the Horizon.”, published in March. The report states,
“The combination of the supply and demand side dynamics suggests that the global oil market could move into large and sustained deficits past 2022, reaching an extreme 1.7 mbd (million barrels per day) by 2025. Running this scenario through our pricing model suggests these balances would lead to Brent oil prices [the benchmark for crude oil prices] rising steadily from 2022 onwards, averaging around $80/bbl in 2023, $100/bbl in 2024 and $190/bbl in 2025.”
What?? From zero to $190 a barrel? What in the world?
The reasoning is simple. Low prices are slashing development of new oil fields to zero, and forcing some smaller fracking companies out of business. This means that when demand for oil recovers, as it will, the supply will not be able to meet it. Since the demand for oil is price-insensitive — we need gasoline to run our cars, and have to pay whatever it costs — small shortfalls in supply can lead to huge rises in price. We have seen this repeatedly, in 1973, 1979, and later. Now, 1.7 billion barrels per day is a very small shortfall, out of total daily production of 100 million barrels – only 1.7%! But it is enough to let prices soar, moving up a near-vertical supply curve.
Note that JP Morgan is not alone (and even if they were, it is worthwhile to heed what they say – investment bankers’ business is based on a clear-eyed view of the future, because they put their money where their mouths are). Goldman Sachs also thinks the price oil will sore: its “Top Projects 2020” report released in late May said so in writing.
OK, what does this mean for us ordinary folks? Maybe – when you consider replacing your current automobile, think about an all-electric. I intend to. With a charging station in your garage, and with batteries improving all the time, your range on one charge is sufficient for most daily driving. Someone I know who has an all-electric says his gas tank needs refilling (you use gasoline when your electric battery is empty) about once a year.
But, won’t soaring crude oil prices make electricity costly? Probably not. Because overall there is a worldwide glut of natural gas, and it is likely to continue, as more and more countries bring natural gas supplies on line. More and more electricity is being made with natural gas.
Food for thought.
Reviving Nikola Tesla
By Shlomo Maital
Nikola Tesla
Thanks to Elon Musk and his Tesla electric cars, the genius inventor Nikola Tesla and his achievements have been revived.
Tesla was born and raised in what is now Serbia, in the Austro-Hungarian empire. He was trained as an engineer. After migrating to the US, he worked for a time with Thomas Edison. However, they had an argument. Tesla believes that the future of electricity lay in alternating current. Edison was committed to direct current.
Tesla left Edison’s shop and went to work for George Westinghouse. There, with Westinghouse, Tesla built an alternating-current electric motor, whose design we employ to this day. It was vastly better than direct-current motors. It did not need powerful permanent magnets. The AC motor formed the basis of the Second Industrial Revolution.
Tesla invented many other things. He invented the “logic gate” which became the foundation for semiconductors. He built a robotic drone (“teleautomaton”, he called it). He tried to find how to transmit electricity wirelessly – we’re still trying to do that.
But Tesla died poor, in New York City, in 1943. He was never able to truly partner with industrial giants who had the money to finance his inventions. Edison, in contrast, was a genius at doing that, and got J.P. Morgan, the banker, to fund his initial electricity company. (Edison was smart enough to ‘electrify’ Wall St first, and J.P. Morgan’s home).
Today we follow Tesla, not Edison. We use AC current, not DC.
There is a lesson here. In order for creative ideas to be actuated, you need resources. That means, you have to communicate your idea to those who can best help implement it, and then work with them, with empathy. Tesla failed at this. But his ideas did change the world. And so are Munk’s Tesla cars. Thanks, Elon, for helping us remember this genius inventor.
TIMnovate 