Category

Oil & Gas

Jun 09
1

Oil Prices Under Pressure as OPEC’s Production Strategy Shifts

By | Events, Finance & Markets, Oil & Gas | No Comments

The recent weakness in oil prices is driven by a combination of a rising supply from OPEC+ and a slowdown in Chinese oil demand.

The increase in supply follows the Saudi Arabia strategy to hurt suppliers that overproduce. However, demand weakness is a more dangerous trend because it may be a long-term issue, considering that the manufacturing sector is in contraction.

Brent crude is currently trading significantly below the $63 a barrel WTI mark, traditionally considered the price that most producers require to break even. However, there are many misconceptions about the long-term breakeven price.

U.S. shale producers are more efficient than what many analysts believe. According to a 2025 survey, producers in the Permian Basin—the most productive U.S. shale region—are profitable at $61 per barrel (WTI) for new wells.

However, existing wells can break even at around $33 per barrel, leaving the blended average close to $40 per barrel, which suggests a very profitable environment even at today’s prices.

OPEC+ policy shift

OPEC+, the alliance of major oil producers led by Saudi Arabia and Russia, has made a notable policy shift in 2025.

After years of restraining output to support prices, the group has embarked on a series of consecutive and accelerated production increases.

In July, eight OPEC+ members will raise output by 411,000 barrels per day (bpd)—the third consecutive monthly hike. Once completed, the alliance will have offset almost half of the 2.2 million bpd voluntary cuts initiated in late 2024.

OPEC+ is keen to defend its market share and show the importing countries that it is a reliable partner

Saudi Arabia is the OPEC member with the largest spare capacity, at around 2.5 million bpd, and a very low production cost, at around $6 per barrel.

The kingdom is trying to penalise OPEC+ members, including Iraq and Kazakhstan, that have consistently exceeded their production quotas. Thus, the alliance legitimises some overproduction by raising official targets, which benefits the lowest-cost producers, mostly Saudi Arabia and the Emirates.

OPEC+ is also concerned about non-OPEC producers, particularly the U.S., rapidly increasing output.

Therefore, OPEC+ is keen to defend its market share and show the importing countries that it is a reliable partner that guarantees supply security and prices that are acceptable for customers and producers.

Healthy market fundamentals

No one can forget that Saudi Arabia is the global central bank of oil and seems to be keen on reminding everyone of its critical role in the stability of the oil market.

Considering the strength of the relationship between Saudi Arabia and the Trump administration, proven by the recent successful trade agreements, the kingdom is the key driver in the decision to boost output.

It helps to reduce inflation and secures a profitable business partnership between the two nations.

Reducing output would have a negative long-term effect on producers

OPEC+ asserts that its actions are guided by “a steady global economic outlook and current healthy market fundamentals”, a stance that contrasts with the pessimistic predictions of some analysts. In fact, despite a weak manufacturing environment, oil demand is reasonable.

There is another important factor behind the production hike. Reducing output would have a negative long-term effect on producers if importer nations perceived that OPEC+ members only wanted to artificially boost prices.

OPEC+ is presenting itself as the reliable and affordable partner to importers. However, it is not just evidence of the strength of the relationship between Saudi Arabia and the United States, but the close link between Russia, an OPEC+ invited guest, and China.

Who benefits and who loses?

China is the world’s largest oil importer and a strategic partner of Russia in many areas. In a moment where China’s economy may suffer due to the ongoing trade disputes, OPEC+ is coming to support the U.S. in its fight to combat inflation and China in its transition period of trade negotiations.

Chinese refiners are cutting processing rates amid a slump in factory activity and an ongoing housing market crisis.

The International Energy Agency (IEA) has repeatedly downgraded its outlook for Chinese oil consumption. The IEA now expects China’s oil demand to grow modestly in 2025.

China’s apparent oil demand fell by 410 thousand barrels per day year-on-year in April (-3%), according to Morgan Stanley

Global oil demand is expected to reach a peak by the end of this decade, with the IEA projecting world oil demand at 105.6 million bpd in 2029.

The recent increase in productions helps importers and the most efficient OPEC members.

China benefits from cheaper oil and gas, the U.S. manages to keep inflation under control without impacting the profitability of shale producers, Saudi Arabia re-establishes itself as the global central bank of oil, and Russia enhances its exporting capabilities to Asia.

Who loses? Venezuela, Iraq, Iran and Mexico, the members of the alliance that need higher oil prices to solve their fiscal imbalances.

Despite these recent challenges, global oversupply of crude is temporary. The World Bank forecasts that global oil supply will exceed demand by an average of 1.2 million bpd in 2025 and financial institutions such as JP Morgan and Goldman Sachs have slashed their price forecasts to $66-67 a barrel (WTI).

However, the market is expected to return to balance by 2026 when all trade negotiations have been completed. Global oil demand is expected to plateau by the end of this decade, with the IEA projecting world oil demand peaking at 105.6 million bpd in 2029.

Saudi Arabia and Russia may have traded some short-term profits for long-term alliances, and the competitiveness and efficiency of global producers will increase with the short-term price pressure.

 

May 19
1

The Spanish Blackout Warning: Change Misguided Green Policies

By | Events, Finance & Markets, Oil & Gas | No Comments

The government of Spain wanted to be a leader in achieving net zero targets. With its short-sighted and destructive policy, the Spanish government achieved absolute net zero: zero electricity, zero telephone, and zero security of supply.

Unfortunately, the Spanish blackout is yet another alarm sign of the disaster that governments are creating with net zero policies.

Blackouts, which should have been something obsolete and forgotten, have become the norm since politicians have begun to politicise energy.

Instead of promoting affordable, reliable, and abundant energy for citizens, politicians all over the world, especially in developed nations, have compromised supply security and competitiveness because the priority was to impose a volatile and intermittent energy mix dictated by renewables.

Furthermore, this ideological extremism that informs many energy policies ignores the need to mine for copper, lithium and rare earths or the environmental impact of batteries.

Renewables are positive in a balanced energy mix with enough baseload energy that works all the time -nuclear and hydro- providing inertia and stability to the grid, with natural gas as a back-up.

Excessive dependence on renewables makes the grid unstable and the system unmanageable due to their volatile and intermittent nature.

Furthermore, the electrochemical storage batteries that the Spanish government hails as the solution to a 100% renewable mix have a two-hour guarantee.

The causes of the worst blackout in Spain’s history

Other countries have suffered power outages recently, including Australia in 2016, Germany in 2017, and the United Kingdom in 2019.

However, none of these were as dramatic and scandalous as the one in Spain. The event is the worst blackout in the history of Spain and the only power outage in the OECD that left citizens without any type of communication for more than ten hours.

What I find unacceptable is to hear Prime Minister Pedro Sanchez lying about companies and the causes of the worst blackout in Spain’s history.

The Spanish grid operator, Red Electrica, warned the stock market regulator just over two months ago about the risk of “generation disconnections due to high penetration of renewables” and the “loss of firm generation capabilities.”

“The closure of conventional generation plants implies a reduction in firm power and the balancing capabilities of the electricity system” – Report

However, the politically appointed chairman of the company, Beatriz Corredor, said in interviews that, “It is not true that nuclear is safer for supply, nor that renewables make the system more vulnerable.”

Both statements have been disproven by her own company and by the European grid operators.

What Corredor says in the media today is the opposite of what her company warned investors.

It warned that the withdrawal of a firm generation, such as nuclear, poses a medium- and long-term threat.

In its 2024 report (Consolidated Annual Accounts), it stated: “The closure of conventional generation plants such as coal, combined cycle, and nuclear (because of regulatory requirements) implies a reduction in firm power and the balancing capabilities of the electricity system, as well as its strength and inertia. The closure could increase the risk of operational incidents that may affect supply and the company’s reputation. This incident represents a risk, with a short- and medium-term horizon. The risk is in the company’s own activities and those of clients and users.”

Dependence on volatile technologies

In September 2020, the grid operator published “System Foresight Studies and Needs for its Operability,” in which it admitted that decreasing inertia levels in the system—about 30% lower in 2030 compared to 2020—could pose a risk of unacceptable frequency deviations in the event of major imbalances.

Additionally, it identified a worsening of frequency stability conditions in the electrical system, highlighting a need for additional inertia provisions, such as those provided by nuclear.

The Spanish competition regulator warned various times since November 2023 about voltage problems

The Spanish competition regulator warned various times since November 2023 about voltage problems: “At certain times, the voltages of the transmission network have reached maximum values close to the thresholds allowed by regulations, even exceeding them at specific times.”

Additionally, Spain’s Red Eléctrica said in September 2023 that, “right now, REE doesn’t have enough tools to stop voltages in the transmission network from getting too high, sometimes going beyond the allowed limits and even causing disconnections of power generation and consumption facilities due to overvoltage.”

This problem has worsened recently due to several factors, citing the loss of base energy and greater dependence on volatile and intermittent technologies such as solar (Technical-economic report of the regulatory demonstration project for the new voltage control service, September 2023).

A report by the European Network of Transmission System Operators for Electricity (ENTSOE), published on January 10, 2025, warned about the risk of reduced system inertia accompanying the decarbonisation of the electricity sector and the increased penetration of renewables and about the need to take measures to ensure frequency and avoid blackouts (“Recovering power system resilience in case of system splits for a future-ready decarbonised system, Project Inertia Phase II”).

Why was this risk hidden?

Media close to the Spanish government called the risk of a great blackout a “great hoax”. Red Electrica published a post on social media platform X on April 9, 2025, saying that “there is no risk of a blackout” and that “Red Electrica guarantees supply.”

Nineteen days after saying “there is no risk” and after dozens of technical warnings, Spain suffered the worst blackout in its history, one of the longest in developed countries, the largest in number of people affected in the European Union, with more than 60 million people without electricity supply, and the only one in the OECD that paralysed all communications with an almost total collapse of mobile networks, internet, and landlines.

The government wanted to celebrate that Spain led the European decarbonisation targets

Why was this risk hidden?

For ideological reasons, the government concealed the grid risk. Anyone who spoke about supply security and competitiveness was accused of being anti-European, and anyone who warned about blackout risk was called a “hoaxer” because the government wanted to celebrate that Spain achieved 100% renewables in a day.

Many activists applauded when nuclear plants had to close, asphyxiated by taxes far exceeding their revenues.

The government wanted to celebrate that Spain led the European decarbonisation targets, but hid that there were constant interruptions to industry and several blackout risk warnings.

Energy policy is decided by activists

Spain’s grid operator, Red Eléctrica, has some of the best technicians in the world. Its specialised staff is an example of professionalism that is recognised worldwide.

However, government sectarianism, the political appointments of executives, and people who ideologise energy prevent serious discussion about the challenges of electrification and nuclear phase-out.

This is a ridiculous era in which nuclear energy is right-wing in Spain but left-wing and popular in France

Energy policy is decided by activists who have no idea about energy and for whom everything renewable is always good but at the same time reject mining copper or lithium, as if renewables were created by singing songs.

These activists fill public management and high corporate responsibility positions due to political allegiance and have a sectarian and short-sighted vision of energy that seems straight out of a kids’ movie where energy is generated by singing and dancing.

Moreover, these activists aren’t concerned about supply security because their goal is social control.

What they do care about is power, which is why Spain’s previous minister of energy transition was anti-nuclear in Spain and pro-nuclear in the European Commission, approving the extension of Belgian nuclear plants.

Eliminating nuclear is unacceptable and will lead to more blackouts, higher electricity prices, and, on top of that, moving from dependence on Russia for natural gas to dependence on Russia and China for natural gas and minerals, respectively.

This blackout could have been avoided. Nothing was done, and, worse, nothing is being done.

Developed economies must abandon the misguided and evidently counterproductive policies that damage supply security and competitiveness and, worst of all, are supposed to be green but do not improve the environment.

The world requires all technologies, and energy policies must meet the objectives of reliability, affordability, and abundance.

We must oppose this madness coming from unscrupulous politicians with no idea about energy.

 

Jan 29
0

Activism Is Destroying A Competitive Energy Transition

By | Oil & Gas, Technology | No Comments

This week, the Biden administration has halted the approval of new licences to export US liquefied natural gas (LNG), a moratorium that is likely to alter billions-dollar projects plans, according to Reuters.

This decision will already mean increased coal consumption in Germany and a global problem in an already tense market such as that of LNG.

However, I would like to quote the New York Times, which explains to us the extremely technical and industrial process that has been used to make such a decision.

Quote: “Before the decision, White House climate advisers met with activists such as Alex Haraus, a 25-year-old Colorado social media influencer who led a TikTok and Instagram campaign to urge young voters to demand that Biden reject the project”; Fascinating.

This is just one example of a larger problem. Stupidity reigns in the world of energy policy.

In the hands of sectarians

We live in a time when a bunch of sectarians who don’t understand anything about industry, energy and competitiveness influence populist politicians who make decisions without the slightest knowledge by assigning a kind of “ideology” to energy sources without understanding the complex chains that facilitate the transition.

We live in a world where a sixteen-year-old climate activist captured the minds of politicians by traveling from the UK to America by boat to avoid pollution only to send the crew by plane to bring the boat back.

We are in the hands of sectarians who think that solar and wind power are manufactured with dreams and installed by singing John Lennon songs

Even in China, they hallucinate with a West that wants competitive, cheap, abundant, and environmentally friendly energy, but refuses to mine rare earths, lithium, and prefers to slow down its decarbonization process and burn coal rather than develop renewable fuels or use natural gas or nuclear energy, which is essential for a competitive energy transition.

In fact, we are in the hands of sectarians who think that solar and wind power are manufactured with dreams and installed by singing John Lennon songs.

I don’t care if this group of disoriented people has good intentions. Hell is full of good intentions. What worries me is that political leaders will destroy any capacity to strengthen the energy industry using rationality.

The combination of arrogance and ignorance

Why do they do that? Because they do not suffer the consequences and because they only use the excuse of climate change and energy transition to impose restrictions on citizens and limit the freedom of individuals.

Activists know that their actions generate more negative effects than positive ones, and that they are threatening security of supply and a competitive transition, but they do not care because their objective is to impose on us supply restrictions and demand destruction while politicians fly private to inform us that coffee drinking is bad for climate. You and I care about the environment, they care about control and repression.

The combination of arrogance and ignorance is expensive and does not accelerate investment and technological development, but rather slows them down

Instead of listening to the companies and engineers, who are the ones who invest and solve the problems that the decarbonization process entails, they are penalised, insulted, and given the power of decision to people who believe that our future should be to return to the prehistoric era (it is not a joke) while flying in private jets announcing the climate emergency.

Anyone would understand that if we want to advance technology, energy independence and at the same time ensure affordable and continuous supply, we need to facilitate investment, provide companies with a stable and predictable regulation, taxation and legal framework, and maximize the return on investments already made as we develop all the technologies that will help us as new forms of storage, production and transmission become industrially viable.

You may believe that thanks to activism, progress is being made in the energy transition.

The reality is that activism has made coal, which had almost disappeared from the energy matrix, to return to Europe with a vengeance, and on the way they have achieved higher consumer tariffs. Socialism always destroys what it pretends to protect.

 

Nov 14
0

Oil Price Roundtrip, A Headache For OPEC

By | Oil & Gas | No Comments

Oil prices surged into the third quarter due to a combination of factors:

  • Artificial supply manipulation, as OPEC maintained production cuts despite healthy demand and better inventories. We discussed it here.
  • Strong leveraged buying based on reflation expectations. As the graph below shows, net length in crude oil rose significantly, only to fall abruptly as rates rise.
  • Excessively optimistic demand growth estimates. In the past three months, we have seen demand estimates slashed by brokers who, at the same time, kept bullish estimates of oil prices into 2019.

Now we are seeing an obvious “hangover” effect, similar to what we saw in 2008.

If you remember, in 2008 we saw oil prices rise dramatically despite global growth estimates coming down and evidence of rising risks to the global economy. We might not be in a similar situation to 2008, but we are seeing a clear evidence of a slowdown.

Moody’s has slashed its estimates of global growth for 2019 by 10% in the past three months, to 3%. Meanwhile, crude inventories are likely to rise in the next months as the main importers start to show the reality of lower growth.

The US has reached an all-time record in oil production, 11.6 million barrels per day, and expected to reach 12 million barrels per day in the next two years, surpassing Russia and Saudi Arabia as the world’s largest producer.

As such, oil prices have roundtripped despite OPEC keeping the tight grip on supply, and also despite concerns on Venezuela and Iran output.

Not only short-term prices are down on the year, but the entire long-term curve has shifted down.

We are talking an entire $5 move down in the forward curve, and oil is now in contango, after spending a few months in backwardation.

Inventories, which fell between April and September, are back at high levels.

The move in oil is simply another piece of evidence of the global slowdown that had been reflected in the price of copper and other commodities. More disinflationary risk as Chinese data becomes more concerning and the eurozone, as well as emerging markets, publish weaker-than-expected figures.

We cannot blame the US dollar, because oil prices have been falling without any rise in the DXY (dollar index).

OPEC has kept its supply cuts, so there is very little else they can do. More importantly, if they decide to artificially manipulate supply again, the response from consumers will be more diversification and it will be -again- only to the advantage of the US producers.

Furthermore, if OPEC remains fixated in inflating oil prices, they will simply hurt their customers in a weakening global growth environment.

What oil prices are showing is simply that we were living a mirage of bullish estimates and artificial inflation of prices, and it lasted very little.

If you want to be bullish oil from here you need to believe in three things:

. OPEC greed (probable)

. Global demand growth rising (improbable)

. Rates falling and leveraged bets increasing (unlikely)

The reflation trade never existed. It was simply part of the fallacy of synchronized growth, and it is dissipating alongside the central-planned myth of GDP growth by design.

Sep 28
0
transición energética

Is The Oil Burden A Rising Problem?

By | Oil & Gas | No Comments

While markets become increasingly bullish, oil prices are close to a “warning zone” where the barrel could be one -if not the only- catalyst of a major slowdown.

In my book “Escape from the Central Bank Trap”, I explain the concept of the “Oil Burden”. It is the percentage of global GDP spent on buying oil. It is often said that when the oil burden reaches 5-6% of GDP it can be a cause of a global slowdown.

The mistake that many make is to think that the oil burden is a cause and not a symptom.

In the past, we have seen that a period of abrupt increases in oil prices was followed by a recession or a crisis. However, not because oil prices rose rapidly, but because the dramatic increase in commodities’ prices was caused by a bubble of credit and excess monetary stimuli.

In reality, the oil burden is perfectly manageable at 5% of GDP because the energy intensity of GDP growth is diminishing. We are less dependent on energy to create growth in the economy.

Global energy intensity (total energy consumption per unit of GDP) declined by 1.2% in 2017, slightly below its historical yet unstoppable trend (-1.5%/year on average between 2000 and 2017 and -1.8% in 2016). In fact, global energy intensity is down 54% since 1990.

So the problem is not the oil burden by itself but the cause of the price spike.

When oil prices rise abruptly we should be concerned, because they can cause a domino effect on the real economy. When the reason for the price increase is not fundamental, we have a major problem.

Why are oil prices rising abnormally in recent months?

. Supply manipulation.  Despite inventories falling, OPEC has maintained a tight grip on supply, unjustified from the premise of an oil glut that is inexistent or from the premise of “low” prices, which are comfortably above $70 a barrel. By being greedy and keeping supply tight, OPEC is hurting its customers -mainly Europe- and creating the foundations of a forthcoming bust cycle.

. Iran sanctions. The reality is that Iran sanctions have a very small impact on the supply market, 600,000 barrels a day reduction in exports. These could be easily offset by higher OPEC and non-OPEC output, but if supply limits remain, the impact on marginal prices is exaggerated. OPEC produced 32.79 million barrels per day in August, up 220,000 bpd (barrels per day)from July’s revised level and the highest this year. However, the lid remains on the maximum output despite Libya coming back to normalized levels.

 . Venezuela production collapse. The Maduro regime’s disastrous management of the state-owned PdVSA has led the country to cut production to 1.4 mbpd (million barrels per day) and likely end 2018 at 1mbpd. The combined impact of Venezuela and Iran could have easily been offset by higher Saudi and OPEC production, helped by higher non-OPEC output.

. Inventories continue to fall. Crude inventories fell for the fifth consecutive week. Stocks are at 394.1 million barrels at the end of the week (22nd Sept 2018) in the US, the lowest level since early 2015. OPEC cannot hang on to the message of an oil glut. It is not evident anywhere anymore.

. US oil production continues to rise and provide positive surprises. U.S. crude oil production is expected to rise 1.31 mbpd to 10.68 mbpd in 2018,  according to the U.S. Energy Information Administration. Production will average 11.7 mbpd in 2019.

. What about demand? High prices are already affecting oil demand in India and Europe. India total demand fell month-on-month in July. Demand was 358 kb/d lower, and demand growth has stalled. In Europe, a slowdown in industrial production and consumer spending is evident, while the emerging market crisis and China slowdown are also clear risks to the optimistic expectations of demand growth posted by OPEC and the EIA.

The risk, therefore, is that too much greed may break the camel’s neck. Imposing artificially higher prices on the world through supply management always backfires. Many oil analysts wonder why oil is not at $100 a barrel with all the above-mentioned issues.

The supply management’s desired “boom” is smaller than expected due to lower energy intensity and high global debt, and the risk of an abrupt bust is exacerbated because price increases are not based on fundamentals.

The global oil burden will rise to 3.1% of global GDP in 2018 from 2.4% in 2017 and -if Brent goes to $80 for an entire year- could soar to 4% of global GDP. This is deemed as manageable by most analysts. However, “manageable” is a scary concept that was used numerous times in the past before a bust.

The risk for the economy may not be the oil burden in itself, but a rising oil burden that is entirely driven by supply manipulation, disconnected from supply and demand reality and affordability.

If you believe rising oil prices prove the success of OPEC’s boom cycle creation, be careful about the bust. It will be self-inflicted.