Oil: The Storm Before the Really Big Storm

West Texas Intermediate, the oil grade most associated with American production, plunged down to -$40 April 20. You read the right. For a while yesterday, sellers had to pay people forty bucks to take a barrel of crude.

As with any product, the business of oil isn’t a once-and-done. It must be produced, shipped and processed, and then the refined product must be shipped and retailed. What happened April 20 is a bottleneck in that process. Production surged ahead of pipeline shipping capacity, leaving some producers with nowhere to put their crude.

The real kicker is that this is not the “negative prices” outcome I predicted a couple weeks back. “All” the April 20 event was was a single facility in a single country running out of future leased storage capacity for the month of May. The April 20 price crash will happen again in the same place and it will be bigger: June WTI futures contracts are now spazzing, and America’s Cushing oil storage and transport nexus undoubtedly will be actually full by then. But even this is nothing but the warmup for the big show.

That will happen when the world runs out of storage.

Numbers are fuzzy in this corner of global oil markets. In part because everyone classifies and categories their oil storage capacity differently. In part because they should (gasoline storage is functionally different from raw oil storage). In part because some countries don’t share data because they’re lazy or secretive. But no one thinks there’s a whole lot of storage capacity left. Global oversupply of crude right now is over 20mpbd (with 30mbpd seeming to be the “average” guestimate). Most folks in the know are now musing that what storage remains will be filled up completely sometime in May or early-June.

And filled up it will be, because that is the express goal of the world’s largest oil exporter, Saudi Arabia. The Saudi price war started out as a spat with the Russians over carrying the burden of a production cut. It has since expanded into the Saudis targeting the end markets of every single one of what the Saudis’ consider to be inefficient producers. The Saudis are directly targeting markets previously serviced not just by US shale and Russian, but those serviced by Kazakhstan and Azerbaijan and Libya and Iraq and Iran and Malaysia and Indonesia and Mexico and Norway and the United Kingdom and Nigeria and Chad and you get the idea.

As of this morning, there are still at least 24 supertankers carrying at least 50 million barrels of Saudi crude en route to the U.S. Gulf Coast. Most will arrive in May, seeking to fill up as much of what remains of U.S. storage as possible. Similar volumes are in route to Europe and even bigger volumes to Northeast Asia. In most cases the destinations are the transshipment nodes that enable distribution of inland-produced oil to coastal locations: Rotterdam, Suez, Singapore, Korea.

Assuming you’ve got deep pockets, and Saudi Arabia’s are some of the world’s deepest, it isn’t a stupid strategy. If the Saudis can push prices firmly negative, it will absolutely crush many of the world’s energy producers. My back-of-envelope math suggest some 20 million barrels per day of production capacity – one-fifth of global output – will go offline for years. And then Riyadh will have what it wants: the ability to raise prices as much as it wants and to reign supreme over the world of oil for at least several years. (There are still a veritable swarm of flies that will need to be dealt with in that particular ointment, but the Saudi plan seems sure of generating plenty of ointment nonetheless.)

The WTI price crash on April 20 confirms that if the Saudis didn’t realize the potential for their strategy’s explosive success before, they certainly do now. They have no reason to back down.
 
There are a few producers worthy of callouts.

  • Canada’s Alberta province has the most to lose. Not only landlocked, it must sell all its oil into the American market that is already so saturated. Its production must be shut in for years.
  • Venezuela was facing civilizational collapse due to mismanagement before oil prices tanked. As oil is the government’s only remaining income stream, this marks the end of Vene as a country.  Its oil will not come back for at least a decade, and even then only if an outside power first physically invades the place to rebuild the country from scratch.
  • America’s sanctions regime against Iran has been so successful the country isn’t an oil exporter any longer. Its output will absolutely collapse this summer, and the country lacks the funds to bring in foreigners to help restart it or the skills to do the work itself.
  • Russian fields are in swamps and permafrost. Drilling is only possible during the winter. Any shut-ins means the wells freeze solid, necessitating completely new drilling. Last time this happened it took the Russians nearly 15 years to get production back.
  • Azerbaijan and Kazakhstan are both dependent upon other countries (in some cases, Russia) to transit their crude to market. High production costs plus finicky neighbors equals long-haul shut-ins.
  • Nigeria is a mess on a good day, and the supermajors who have made Nigerian output possible have steadily moved offshore to get away from the chaos and violence. Once they turn off their wells, they won’t even consider returning until global prices rise to the point that they are once again willing to subject their staff to frequent kidnapping. That’s several years off.
  • Iraq has been in a state of near civil war for some 15 years. The country is now producing over 4mbpd, the income of which helps hold the place together. Negative prices will remove the “near” from the country’s political condition and (at best) make the place a ward of the Arab states of the Persian Gulf.

 
It is also worth noting that the speed that this could all go from head-spinning to head-chopping is intensely short. Right now there’s still a fair amount of spare oil tankers to shuttle about the world. The Saudis have been leasing out every tanker they can find, so before long all the the world’s tankers will be full as well.

Oil has been a panacea for all sorts of inefficient, compromised, and in some cases evil regimes for decades. Huge demand in the West and Northeast Asia allowed a raft of previously insignificant or morally reprehensible leaders and societal situations to effectively print dollars out of the ground and count the industrialized world as a hungry customer. Not anymore. Demand patterns have shifted, the United States is now an exporter of crude oil and products, and the petro-economy that has kept ayatollahs and ideologues afloat is crumbling. Before anyone cheers it’s worth remembering that things will get a lot uglier before they have any hope of improving. 

For a good idea as to the flavor of ugly, my new book Disunited Nations has full chapters on three of the world’s most distorted and bizarre oil-based economies: Russia, Iran and Saudi Arabia. Their struggle with the world-to-come is going to be a crazy ride.

Join Peter Zeihan and Melissa Taylor April 30th for an in-depth discussion and presentation on the impact of COVID-19 on global agricultural production and the stability of the world’s food supply.

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Future planned invents include:

  • Transport and Supply Chains
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  • Industrial Commodities

American Agricultural Abundance

Yowzas! That’s a lot of food! The United States is by far the world’s largest agricultural producer and exporter. For America’s food supply system to truly break down in the age of coronavirus, a whoooooole lot of things would need to go wrong.

But that is not the same thing as saying there are not challenges.

Consider bacon.

Everyone loves bacon. Even (especially?) vegans secretly lust for it. But we don’t have it every day at home – or even every week. Yet when we eat out we are far more likely toss some down. Wrapped around a jalapeno, on top of a burger, sprinkled over a salad, and on and on. The products we consume are appropriate to our culture, and the American food industry excels at matching foods to settings. What coronavirus has taken from us is some of our settings.

Restaurant sales in most locations were down 70% the day before the stay-at-home orders snapped into place. So now America has a bacon surplus. But it could simultaneously have a pork chop shortage, because we are more likely to eat that particular cut of meat at home.

This sort of product mismatch is only one of a half dozen factors causing tightness in our food supplies. Also in play are labor structure, product gaps, trucking vulnerabilities, industrial packaging and meat processing. Join us April 20 for the fourth in our series of coronavirus-themed videoconferences to hear Peter Zeihan break down the threats to American food security.

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Coronavirus: The American Food Security Guide

My partner just got back from a grocery store stock-up. The trip-in has been part of our weekly ritual since this coronavirus thing got going. The post-shopping conversation has a similar ritualistic feel. Whoever stays home queries the other one with the same barrage. Here’s this week’s Q&A:
 
How busy was it? (Packed)
People wearing masks? (Maybe two-thirds?)
Bare shelves? (Nope)
Produce? (Loads) *thumbs up*
Plenty of flour? (Yup)
What about pasta? (Only if you’re gluten free) *mutual gag*
Meat products? (Everything but hotdogs and the cheap sausages)
Anything on our list not there? (No caramel-flavored coffee creamer)
 
We’ll come back to that creamer.
 
Much of my work involves me balancing on the knife’s edge between big-picture statements and projections on one side, and an endless litany of caveats and clarifications on the other. About half of what I speak and/or write about really really big stuff: the fate of nations over timeframes measured in decades.
 
I love doing the big stuff. Sussing out the big trends in technology and geography and demographics to play forward a global game of multidimensional chess with dozens, even thousands, of players.
 
But to do the big stuff you absolutely must sweat the details. Every snowflake is a potential avalanche trigger. It wasn’t so long ago that America’s shale revolution fell firmly into the “small stuff” category. Now it’s altered the global trajectory. I (heavily) rely upon Melissa Taylor and Michael Nayebi-Oskoui to alert me to just those sort of avalanche triggers.
 
Which makes discussing America’s food supply in the time of coronavirus somewhat…messy. As I am wont to do, let’s start with the big.
 
Despite all the disruption the coronavirus epidemic is causing the United States, the food supply system is working well. Disruptions are largely limited to changes in demand (such as hoarding), as opposed to challenges to supply. There is zero reason to expect the United States to need to bar food exports. No region of the country is going to starve, much less the country as a whole.
 
My high confidence in this projection comes down to simple economic geography. America’s agricultural capacity is absolutely unparalleled.
 
Vast tracts of flat, fertile, arable land in a wide variety of temperate climate subzones to support a wealth of crops. Winter weather to kill bugs and weeds. Wind currents from the Pacific and Gulf of Mexico to provide ample, reliable precipitation. And all of it overlaid with the world’s largest, interconnected, naturally navigable waterway system to ensure easy and cheap transport of the resulting product. Toss in the vast petroleum production of the American shale revolution—oil is the base material used to fabricate the core agricultural inputs of gasoline, diesel fuel, fertilizer, herbicide, pesticide and fungicide—and every part of the American seasonal agricultural supply chain is domestic, redundant, inexpensive and secure.
 
It shows in the output. The United States is either the largest or among the largest producers of corn and wheat and soy and oats and dairy and beef and pork and chicken and apples and you get the idea. All-in the American agricultural industry is so productive and outsized for its population it must export about one out of every four calories it produces. There are exceedingly few items the United States is not self-sufficient in, and even those items—such as, God-forbid, coffee—are nearly all easily-sourced at volume within the Western Hemisphere.
 
The nature of most agricultural production is also pretty damn near virus resistant. Most aspects of the farming/ranching process deal with few people over large chunks of territory. Whether it is sowing or fertilizer crops in a large piece of farm equipment, or zipping around a cattle herd on an ATV, there simply isn’t much opportunity for contamination. Even with more constrained facilities such as dairies or chicken farms, it’s the animals rather than the humans that cannot social distance. So, big picture, the issue simply isn’t going to be one of insufficient calories being produced.
 
Which is where Melissa and Michael both intervene and say, “not so fast”.
 
Much of the country’s agricultural labor force in the harvesting of fruits and vegetables, as well as in the processing of meats, is not highly spaced out and so is vulnerable to the virus. Each step of getting foodstuffs from production to processing to packaging to retail requires a different truck…with a different driver. More steps, more chances for disruption. And food producers in one part of the country might not even be aware of food demands in a different part of the country, leading them to plow under their fields or dump milk in ditches, even in times of stress.
 
As regards American food security at the moment, the detail-oriented minds of Melissa and Michael are somewhere between thoughtful concern and a slight edge of quiet panic. The big picture guy in me blithely waves a hand at the complexity while noting extreme redundancy, extreme resilience, extreme slack in the system, and extreme overproduction compared to national demand. Soooo many things would need to go wrong for the United States to face meaningful shortages. They note that many areas in Texas are already experiencing scarcities of flour and steaks and chicken and produce – and that in a state that produces all these things, in many cases through multiple seasons. I note that we’re in pretty good shape in Colorado, even though the concept of growing food at high altitude, in the winter no less, is simply laughable.
 
(Incidentally, our best guess for that last disconnect is that Texans are used to being scared more, and so are more experienced hoarders. A Texas hurricane can take basic infrastructure offline for weeks, prompting locals to panic shop for everything imaginable. The Houston area is still recovering from Hurricane Harvey. In contrast, Colorado snowstorms don’t require much more than grabbing a couple extra frozen pizzas. We got a foot of snow here Sunday and Monday, yet by Tuesday morning everything was already clear.)
 
The core of our dispute is information. The United States still hasn’t reached sustainable COVID testing capacity of 150,000 people a day. Until the country hits one million, complete economic lockdown is really the only mitigation method for any flareups. At the rate we are going we will not get there this year. That leaves all three of us guessing. Just how bad COVID-19 is going to be? Just how long will it last? Can we get reinfected? How soon until a reasonable treatment?
 
Which brings us to two conclusions.

First, it is time to start gaming out weaknesses in the system. Trucking, meat packing, food processing, migrant labor dependency, grocery store workers. All these and more are potential failure points. For them to impact—I mean really impact—food supplies at the local level they would need to fail badly. But low risk is not the same as no risk, and coronavirus continues to…surprise.
 
Second, we will have product mismatches. It is less an issue of raw demand or supply, and instead an issue of preparation and packaging.
 
Consider toilet paper. Are people hording it? Yes (damn them), but there is more going on here. Since as many people as possible are working from home, most…use of the “facilities” is also occurring at home. Ergo, most everyone needs more toilet paper at home. The two-ply rolls of fluffy TP you buy for your bathroom are not the same as those giant wheels of ultra-thin near-newsprint you typically suffer through at work. While technically they are substitutes for one another, the two products use different wood fiber, they are made in different production runs, and they are packaged and distributed differently. The country’s overall supply of TP hasn’t changed. Neither has its demand. But the product mix has shifted.
 
The same thing will occur—is occurring—with food. Something like one-third of the meals Americans used to eat were eaten out. The sort of food processing and packaging for IHOP is significantly different from the sorts of products you purchase at the grocery store. The food processing industry is shifting onto a new footing more appropriate for Quarantine World, but it doesn’t happen overnight. In the meantime, it isn’t that there is less food available, it is our new stay-at-home lifestyles have concentrated demand into specific product categories.
 
There’s also more than a bit of second-guessing. Grocery stores are bracing for disruption in the food supply chain. While that may never actually occur, they feel obligated to provide for everyone’s basic needs regardless of everyone’s less-than-basic preferences—doubly so while the food processing industry is shifting gears. So, for weeks they have been making changes to what they order and warehouse, not based on customer preference, but instead with an eye towards nutrition and redundancy. More big bottles of canola oil from North Dakota, fewer small bottles of committed-suicide-in-the-wild collected-by-singing-cherubim imported hazelnut oil. More half-and-half, less…luxuriously velvety delectable caramel coffee creamer.
 
That’s what product mismatches means. Not that we’re out of food, but that there’s a hole in grocery shelves where you wish there was a very specific kind of food. Unless COVID disrupts the system far more than it has to date, the big-picture guy in me can confidently proclaim that this isn’t about shortages, but instead about insurance.

Or at least it isn’t about shortages yet. As Melissa and Michael relentlessly pointed out to me as I was assembling this piece, at the moment due to coronavirus-triggered facility shutdowns, some 10% of America’s beef and pork processing is offline. I’ll admit that one made me a little nervous.
 
Next week it is my turn to make the grocery run. If there is no bacon I will very suddenly shift from the big-picture guy to someone far more focused on the details.
 
But I won’t starve while doing it.

If you have more questions about the resiliency of the US Agricultural supply system in the face of pressures due to COVID-19, join Zeihan on Geopolitics’ Peter Zeihan for an in-depth seminar on April 20, 2020. 

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Future planned invents include:

  • Transport and Supply Chains
  • Manufacturing
  • Industrial Commodities

OPEC Production Deal, or Price War 2.0?

After the better part of five days of marathon negotiations spearheaded by Saudi Arabia with the goal of eliminating coronavirus-induced overhang in oil supply, global oil producers hammered out April 12 an agreement to reduce oil output by a record 8.5 million barrels a day.
 
The short version is the deal is a joke. I could spam readers with a full newsletter on just how much a joke it is – it relies upon cuts from countries who have never cut before, not all OPEC states are participating, it expects the Russians to cut as much in exports as Kuwait exports in total, the plan is to not begin the cut until May and then start rolling it back only two months later – but really it comes down to something far more basic:
 
Oil traders, the folks who probably have the best feel for just how much demand has dropped, estimate the global oversupply is now between 30mbpd and 35mbpd. Simply the reduction in demand for jet fuel is probably about 5mbpd. The OPEC cut is only for 5.6mbpd with another 2.9mbpd coming from non-OPEC members. Even if everyone plays along, this just isn’t enough to make a difference.
 
Which pushes the discussion to other directions. The world is running out of storage capacity. We’re really not quite sure how much spare storage exists in the world since everyone measures it a bit differently, while countries like Saudi Arabia and China are notoriously squirrely about just how much they have stashed around the world. Industry guesses as of the end of March ranged from 1 billion to 2 barrels, so I’m just going to split the difference and call it 1.5 billion.
 
If everyone sticks to the OPEC plan and if that 1.5 billion figure is correct and if the oil traders know what they are talking about, then all global storage is filled to the brim by early June at the latest. Should the OPEC deal collapse and everyone just keep pumping, zero-hour moves forward to roughly mid-May.

Or maybe sooner.
 
The quick and dirty of the backstory is that in addition to the coronavirus-induced demand collapse, the Saudis are engaged in a price war with the Russians. In every agreement the Saudis have hammered out with the Russians since the Soviet collapse, the Russians have never actually cut and simply made the Saudis eat the difference. Similar attitudes have prevailed in Venezuela, Iran, Nigeria and Iraq – the first two of whom are not even included in the cuts agreement.
 
Ok, on with the show.
 
On April 13 the Saudis announced sales prices for their crude shipments. They added $5 a barrel to their asking prices for American deliveries, but cut their asking prices for Asian deliveries.
 
US President Donald Trump has been aggressively lobbying the Saudis for a significant production cut in order to help US shale producers. While the April 12 OPEC agreement will likely keep Trump off the Saudis’ back for the time being, the change in contract prices is far more significant. They suggest the Saudis are going to stop dumping crude oil on the US market, so that the shale producers don’t drown quite so quickly. Add in that roughly half of all remaining (known) oil storage is in the United States, and most American shale producers won’t be facing chock-full infrastructure until at least late-summer. Any sort of output reductions in the American shale patches, whether caused by rapid well-decline rates or deliberate shut-ins, will extend that deadline out further.
 
But simultaneously, any Saudi crude that is not being shipped to the Gulf of Mexico will instead be steaming towards Asia, intensifying Saudi Arabia’s price war in countries where Russian and Iranian and Nigerian and Iraqi crudes feature. So the price war lives on, just in a more constrained economic geography. We could see a complete overload of Eurasian storage capacity in a matter of a few weeks.
 
All in all it’s a pretty shrewd play by Riyadh. Lead an agreement you know the Russians will violate in order to provide political cover. Reduce flows to the United States to get Donald Trump off your back. But redirect those flows to places that will really hurt your Eastern Hemispheric competition.

While things look rough for oil futures, it’s not all bad news! One area where the US supply chain is particularly resilient is regarding its agriculture. US farmers, food processors and grocer/retailers are in the strongest position in the world to continue delivering food supplies to American consumers. While consumption patterns and panic-induced hoarding will continue to empty shelves at local stores, all elements of the US supply chain have been able to continuously restock — and will continue to do so. 
 
If you have more questions about the resiliency of the US Agricultural supply system in the face of pressures due to COVID-19, join Zeihan on Geopolitics’ Peter Zeihan for an in-depth seminar on April 20, 2020. 

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Future planned invents include:

  • Transport and Supply Chains
  • Manufacturing
  • Industrial Commodities

US COVID-19 Testing Data, April-19

Recent data on the US’ fight against COVID-19 is sobering, albeit incomplete. Testing overall is dramatically insufficient. Labs are just now beginning to clear through a significant backlog of tests. Without a more aggressive testing regime, US state, local and federal authorities have struggled (and will continue to struggle) to deliver a clear picture or accurate predictive modeling about the extent of infections and mortality rates. That is doubly true for areas about to enter their peak caseloads and associated surges in hospital demand.
 
This will be particularly challenging for American’s rural southern and Appalachian states, who have lagged behind national US testing rates and whose healthcare provider and hospital networks lack the redundancy and surge capabilities of large urban and contiguous coastal population centers, such as in the NY-NJ-CT area. While population centers in these states are less concentrated and overall smaller, so too are their healthcare networks smaller and more diffuse throughout communities.

But it’s not all bad news! One area where the US supply chain is particularly resilient is regarding its agriculture. US farmers, food processors and grocer/retailers are in the strongest position in the world to continue delivering food supplies to American consumers. While consumption patterns and panic-induced hoarding will continue to empty shelves at local stores, all elements of the US supply chain have been able to continuously restock — and will continue to do so. 
 
If you have more questions about the resiliency of the US Agricultural supply system in the face of pressures due to COVID-19, join Zeihan on Geopolitics’ Peter Zeihan for an in-depth seminar on April 20, 2020. 

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Future planned invents include:

  • Transport and Supply Chains
  • Manufacturing
  • Industrial Commodities

The Long, Uphill Climb

Folks, coronavirus is going to be with us for awhile, and it isn’t going to hit every country the same.
 
While all eyes are on New York City right now, it is only at the leading edge of the epidemic in the United States. Each metro region is going to experience its own peak and plateau in COVID-19 cases. NYC’s “peak” will hopefully be this week (but it may be a month from now) along with New Orleans and Detroit. Then other cities. The slapdash and erratic nature of the American lockdown, combined with a woefully insufficient testing system and America’s huge geographic spread, ensures that America’s coronavirus peaks and plateaus will not line up, and as such, occur over a much longer period of time.
 
The damage in the developing world is certain to be far worse. More densely populated cities defined by more cramped living conditions make social distancing difficult to impossible. Even worse, most of the developing world’s workers do not have jobs that enable telecommuting nor do the developing world’s governments have the raw fiscal power of the United States to simply send everyone home for a few weeks. People have to work, and they likely have to work in economic sectors where they most directly interact with one another in specific places. All that encourages both coronavirus’ spread and its ability to treat the poorest parts of the developing world as reservoirs.
 
Don’t see cases in the developed world yet? That’s no surprise. The virus started spreading there after most of the developed world so the epidemics are still early. Most of the developed world lacks high levels of air travel or between-city mass transit, slowing the virus’ spread. In addition, the very weakness of health systems in the developing world that will make the epidemic more painful also means there is hardly any testing.

Combine a longer American economic shut-off with pending deeper epidemics in the developing world than what we have seen thus far, and the end result will be a global economic system that both splinters and faces a very long period of subdued activity.
 
This hits every economic sector in some way, but arguably the industry which will suffer the most rapid and catastrophic change will be energy. Before 2020, the greatest global oil demand drop was only 10%, at the height of the 1998 Asian Financial Crisis. As a result, oil prices plunged by three-quarters. So far in the coronavirus crisis, global oil demand is down between 15% and 35%. Unlike in 1998 when low energy prices stimulated energy demand and so prompted its own recovery, this time we have months of large sections of the world simply remaining offline.
 
Not every producer is going to survive this. In fact, the global nature of the energy sector isn’t likely to survive this.
 
Join Peter Zeihan for a videoconference April 10 to explore which countries will fall out of the market, which will make the cut, and how the changed map of production will remake consumption patterns in the post-COVID era.

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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.

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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.

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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.

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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.

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