OPEC 2.0 Is Here: Invest Accordingly
OPEC as we know it is dying.
Don’t weep — it had a good 54-year run, didn’t it?
Its history was fraught with infighting, backstabbing, and more cheating than you can imagine. In fact, breaking production quotas had become so commonplace within the oil cartel that it was hard to take its numbers seriously — especially given how closely members guarded their field data.
Production doves like Saudi Arabia argued tirelessly against hawks like Iran and Venezuela for higher output.
Let’s call it one of the most dysfunctional families we’ve ever seen.
And now the end is near.
All it took was an energy revolution... and a little time.
But just how far have we come?
Look, when a handful of oil producers can effectively manipulate the price of crude for the better part of five decades, you have to give them some credit — not many people would’ve been able to pull that off.
Ah, but all things must come to an end.
And for OPEC, the cracks started appearing years ago.
Despite the fact that approximately more than two-thirds of the world’s proven oil reserves are found in the Middle East and South America, much of that oil may be destined to stay buried underground.
Venezuela holds more proven reserves than anyone else, with 303 billion barrels of oil waiting to be extracted.
Together, OPEC controls 71% — 1.2 trillion barrels — of the world’s proven oil reserves.
But you and I both know that oil is worthless... unless you can get it out of the ground economically.
Unfortunately, that’s the case for Venezuela, which has 303 billion barrels of oil just waiting to be extracted — more than any other country on Earth!
Decades of mismanagement have sent Venezuela’s oil production into a downward spiral that will only end when it hits zero.
Since 2008, Venezuela’s oil production has been cut in half. Last year, the country’s oil drillers extracted an average of 1.5 million barrels per day.
In April, the country’s output had fallen to 830,000 barrels per day.
Last month, it plummeted to 741,000 barrels per day.
How soon will PDVSA post its first goose egg? Some analysts have suggested it could happen before we ring in 2020.
Venezuela is simply one part of the collapse.
You don’t need me to tell you about the geopolitical dumpster fire that is the Middle East.
From tanker attacks to drone targeting, there won’t be a happy ending to this story.
Sanctions are once again crippling Iran’s oil exports, which have fallen to roughly 300,000 barrels per day in June.
To put a little perspective on that, just remember that Iran was exporting more than 2.5 million barrels per day a little over a year ago.
Of course, announcing that the doors to diplomacy are shut and threatening to close the Strait of Hormuz isn’t going to make matters better.
So who do you think the winner is in this mess?
The answer is OPEC 2.0.
As OPEC as we know it dissolves into a sea of its own volatility, it’s clear that three of the world’s largest oil-producing countries will come out on top: Russia, Saudi Arabia, and the United States.
When BP released its latest Statistical Review of World Energy 2019 recently, it was clear that this crude triumvirate held all the power.
Together, OPEC 2.0 accounted for 38.9 million barrels per day (including oil and condensate) of the world’s oil production in 2018.
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For the record, that’s 41% of global supply — far higher than the current group of OPEC members.
But that doesn’t tell you the whole story.
You see, the real cash cow for oil exports will be found in Asia.
Although the U.S. is far and away the largest oil consumer on the planet, our demand has been relatively flat for the last decade.
Yes, U.S. oil consumption reached a record 20.4 million barrels per day in 2018, about 2.5% higher than the previous year.
However, China is quickly catching up.
China’s oil demand has surged 70% since 2008, growing to over 13.5 million barrels per day last year.
Unlike the U.S., China’s oil production has languished over the last 10 years, which means the Middle Kingdom is becoming increasingly dependent on foreign imports.
Right now, the Saudis are taking full advantage of both U.S. oil sanctions on Iran and growing Chinese demand; Saudi exports to Asia Pacific countries have reached their highest level in 15 years.
That’s not going to last.
All trade wars come to an end eventually, and the spat taking place between China and the U.S. is no exception.
The question is: Will you be prepared when it does?
Until next time,
A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing's Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.
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