China’s Energy Gauntlet and the Future of Oil

Coronavirus has launched the greatest energy upheaval since the dawn of the petroleum age. In the short run, this means rock-bottom – even negative – prices for oil and a much-needed price break for the world’s major energy consumers.

But nothing lasts forever.

Extended periods of low prices will destroy the productive capacity of many oil exporters, removing them from the market for years. Once the coronavirus crisis passes, that changed map of oil production and export will radically remake global energy flows. By far the largest loser will be China.

China today, as the world’s largest oil importer, sources crude from quite literally everywhere it can. This map – from my new book, Disunited Nations – shows the diversity of sources and the risks to its oil supply chains posed by other countries.

Many of these producers will not be in the market a year from now. Their absence will add an energy security layer to China’s already irrecoverable debt, finance, demographic, consumption, security, political, supply chain and trade problems.

To get the full story, join Peter Zeihan for a video-conference April 10 to explore the end of the era of global energy markets and the rise of a more regionalized – and far less stable – system.

REGISTER HERE

Future planned invents include:

The Shattering of Global Oil

Oil demand is relatively inelastic. That’s a fancy-schmancy economic term that means people and firms’ energy demand doesn’t vary very much from day-to-day or even year-to-year. Driving to work is perhaps the most accessible example. You do it every work day. If you don’t, you don’t work. And so you drive. Your gasoline demand is stable. Inelastic. Doesn’t matter much if gasoline sells for $1 or $4.
 
On the price side, this means the “normal” rules of supply and demand barely apply. Even minor shifts in supply or demand have wildly outsized impacts on price. We’re used to seeing this as a shortage. China booms and oil prices go up. Iran and Iraq go to war and prices go up. Derivatives trading enters the world of oil and prices go up.
 
But such lopsided impacts also work the other way. In 1991 when it became apparent that the first Gulf War would be a cakewalk and threats to oil supplies were not going to manifest, prices collapsed. They did so again at the beginning of the 2007 subprime real estate crisis after being on a multi-year tear.
 
And now coronavirus is introducing the greatest shift in oil pricing in history. Based on who is making the guess (because no one really has good data yet), coronavirus-instigated quarantines have reduced global oil demand by somewhere between 15 million and 35 million barrels per day out of a pre-crisis level of 100 million. Global prices have plunged to as low as $20 a barrel thus far, and they have (a lot) further to go.

In the past, OPEC has often attempted to micromanage oil markets by adding or subtracting bits of crude. But never before have such changes occurred on anything but a multi-month time-frame, and never before have such changes shifted the balance by more than a couple million barrels at a time. Coronavirus’ impact is already an order of magnitude more than OPEC’s greatest action, and it all happened in just three weeks.
 
This evisceration of demand, the sheer scale of imminent producer collapse is only the beginning. Deepening economic dislocation combined with the greater regionalization of a post-COVID world means oil demand – and global energy markets – will never recover. Join Peter Zeihan April 10 for an exploration of the path forward for the global energy sector, with a heavy emphasis on which producers might be able to stay the course, and which we may not hear from for years.

REGISTER HERE

Future planned invents include:

Elbow Room and the Unmaking of the Global Economy

Best practices for social distancing suggest a minimum separation distance of six feet in all directions. While such practices are inconvenient and annoying, most Americans can carry out social distancing should they choose, because most Americans live in environments with hefty elbow room both within their homes as well as in their cities and towns.
 
However, that is not the case in many parts of the world. Most global population centers are far more dense than American cities, with both the typical living quarters and the cities’ footprints themselves being far smaller per unit of population.
 
Add in the concentrating effects of extreme poverty, and in some parts of the world social distancing isn’t even theoretically possible.

The outcomes of such cramped living are extreme and reach far beyond health. Join Peter Zeihan to explore such differences in demographic concentration and economic structure, and apply those findings to the ongoing coronavirus epidemic. One outcome among many: the end of global economic integration.

REGISTER HERE

Future planned invents include:

Coronavirus: The Energy Guide

As a rule I try to stay out of discussions about energy prices. Energy trading is a hectic business with a lot of stress, plagued by fleets of hot-headed issues that have nothing to do with supply or demand or technology. But that’s not the problem today.

Continue reading

Coronavirus: The Developing World Guide

As governments in Washington, DC and London and Paris took their time to push their respective populations to shelter in place, the novel coronavirus did what it does best: spread quickly and efficiently through dense populations, the sort of dense communities that define the US Atlantic coast and most of Northwestern Europe.

Continue reading

Coronavirus: The Unmaking of the Global Economy

Here is the accumulated data of all known cases of coronavirus in the United States, courtesy of The COVID Tracking Project. As you can see the situation is getting both worse and better.
 
Worse in that deaths are starting to rise significantly, and that is far worse than it looks. At present about 40% of deaths are in New York state, with nearly all of those in the New York City area – the first American metropolitan region to suffer a full epidemic. Nor is NYC done. Today’s figures indicate the city has at least another week, likely two, before deaths peak. New York’s experience will soon be echoed in other areas with New Orleans, Seattle, Detroit and Chicago looking particularly worrisome. Not linear, logarithmic.
 
Better in that the United States is finally testing about 100,000 people a day. Without decent epidemiological data any public health policy with an eye on containment or mitigation is simply a shot in the dark. Unfortunately, materials, equipment and lab bottlenecks have made testing numbers plateau at this level. Multi-day delays in receiving test results are widespread. Until the United States can increase testing volumes to at least 1,000,000 a day and reduce testing times to a few hours, the only method the country will have for containing the epidemic is complete economic lockdown.

The United States will be the country that has suffered the greatest recorded deaths from coronavirus within two weeks, and the death toll certainly will not peak within a week of that dire landmark. But as difficult and tragic as it is to imagine, coronavirus will burn a much harsher swathe through other countries in the months to come.

Join Peter Zeihan for an exploration of the pandemic to come. He will discuss how and where coronavirus will impact the major countries of the developing world, and how and where it will remake regional and the global economies both this year and far into the future.

REGISTER HERE

Long after the epidemic peaks in the United States and Europe it will rage through the developed world, inflicting far deeper damage to populations and economies. The United States has HVAC systems and indoor plumbing and so has the option of social distancing. Much of the world’s population does not.

And while the American economy is largely sequestered from the rest of humanity, that of the developing world is not. Damage there will reverberate through the global system, region by region, sector by sector, in ways that will break the global Order’s very foundation.

Please click “Register here” above for more details.