The End of OPEC?

That's a catchy title. Clickbait, even. But I really think the oil cartels have lost control of the oil market, and that's a good thing.

Some very interesting events going on in the oil world. Now I'm not an oil expert by any means, so this blog post is nothing but the opinion of an outsider. But it's interesting nonetheless.

If you can't tell, global travel has halted.

Oil demand is expected to fall by 33% in the month of April. A 33% drop in the use of oil!

A climate change activist would never even dare to dream of such a thing, and yet it happened. But nobody wanted it to happen, so it's not a climate change celebration.

Jet fuel usage is expected to drop 23% this year! Flights are grounded, and won't get back to the previous levels for a while.

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If you haven't been watching, OPEC+ agreed on Friday to cut production by 10% for the next 2 months. Besides being a non-expert in oil, I'm also a non-expert in math. A 10% cut, for a 2 month period, doesn't solve a 33% drop in demand.

Not that you can trust OPEC to stand by its word on that.

From what I've read, oil producers are going to have to stop production anyways. There's no more room to store it. All the oil tanks are as full as their owners want them to be. Dropping the price of oil from $30 to $20 to $10 will not solve this. The oil tanks are full, there's no more room to store all the oil coming out of the ground.

Some inland oil producers like Canada and Texas will have negative oil prices. They'll give you a barrel of oil for free, and give you a few cents to take it away. This is a crazy situation.

Trump himself says the U.S. cuts will happen naturally. He's not going to order oil production halted but expects U.S. oil producers to not be able to afford to pull oil because of the low price. Cartels are illegal in the U.S., so it's not like the U.S. producers can get together and agree to cut production as a group.

My take is that this “agreement” to cut oil production will not matter in the end. Oil production will stop naturally.

Interesting times in the oil market. 70 cents per liter gas will stay for a while. $1.80 gas will stay around for a while.

Of course, the airlines will come back. Cars will come back. Slowly, but eventually, they will.

It'll be interesting to see where the chips fall after all that.

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