Energy War 2020

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Energy War 2020

At least since the beginning of the industrial revolution, energy has been at the center of geopolitical reality. 

  • Coal gave England an enormous advantage in launching factories and ensuring its naval dominance in the 19th
  • The United States and the USSR defeated the axis powers in World War II largely because they both had access to inexpensive petroleum.
  • The Middle East became the center of global tensions following the 1973 Arab Oil Embargo, as OPEC took control of oil prices.
  • And in the 21st century, new technologies enabled the United States to recapture global hegemony as fracking returned North America to the role of top global energy producer.

As recently as 2012, a President of the United States said, “You can’t drill your way to energy independence.”  However, as the Trends editors had predicted years earlier, the United States was actually able to “drill it’s way to energy dominance.”  And the governments of Russia and Saudi Arabia aren’t any happier about that reality than Barack Obama.

In 2015, the Saudis led a coalition of producers that drove prices below $30/barrel in an effort to cripple the young U.S. fracking industry.  But ironically, the effort made the industry stronger and more competitive.

Today, a new alliance called “OPEC+” is trying again; it consists of OPEC members plus Russia.  Rather than simply waiting for the results of “Energy War 2020,” the Trends editors have attempted to answer crucial questions asked by consumers and investors: What’s at stake?  What are the underlying economic realities?  How is this energy war likely to play out?  And what are the implications?

Given the dual pressures of a supply surge by OPEC+ and a COVID 19-driven collapse in demand, oil prices fell to around $20/barrel within a week.  And, as of this writing, they were still in the $20-to-$30/barrel range for the first time since OPEC’s failed attack on shale, ended 4 years ago. 

To fully understand the competitive dynamics and economic implications of Energy War 2020, we have to look at the supply and demand dynamics, as well as the geopolitical realities.

Let’s start with demand.

The Trends editors are optimistic about a rapid snap-back in U.S. energy demand by the third quarter largely due to astute policy decisions by the White House, Congress, and Fed.  However, global demand, which is the primary driver of energy prices, may take considerably longer to rebound.

Until we can reliably forecast the path of COVID19 infections, there is increasingly little room left for optimism about worldwide petroleum demand in the second quarter of 2020...

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