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Yes, but oil WILL recover

Japan Restarts Old Oil-Fired Power Stations | Financial Tribune

A recent article in SLATE bore the questioning headline, "What happens if oil doesn't recover?".

The question is a timely one. Oil prices have taken a beating of late. I have a precis of the reasons why in a recent post here about Berkshire Hathaway and Occidental Petroleum, and won't recap that.

The brief dip of near-month futures into negative prices -- companies were paying good money to cancel deliveries of the stuff -- drew a lot of attention. But let's look at the big picture to fix the size of the drop. Through December 2019 the price of West Texas Intermediate rose slowly and, it seemed, steadily. It went from $55.86 per barrel when the month began to $61.40 at year's end. In January, before most of the western hemisphere even knew the word "Wuhan," the price began a decline. WTI ended January at $51.56.  The decline became much more dramatic in February, down to $44.76. In March, it fell off a cliff, ending that month at $20.48, only about one-third of the year-end value. In April, let us simply say: no rebound.

The SLATE piece, by Fred Kaplan, engages in speculation about the geopolitical shifts that will take place if there is still no rebound through the coming (northern hemisphere) summer. Of course summer is usually a time when a lot of people are doing a lot of driving. Gasoline demand means crude oil demand. Also, summer is a time when people at home use a lot of air conditioning, which keeps those oil-fired power plants busy.

Kaplan suggests that if oil doesn't recover, and it appears as of September that this is a long-term demand depression rather than something oil producers can easily wait out, then the world could see the fall of the House of Saud in Arabia, with all the region-wide instability one might infer from that.

Personally, I am unworried, for the reason I succinctly stated in the headline of this post. The possibility of a power struggle in North Korea worries me. Increased Chinese claims to regional sway to their south and west also worries me. Lots of things in the world today worry me. An imbecilic sociopath in command of the nuclear arsenal of the US happens to be on the list.

But that there will be no rebound in oil demand? Put that one aside. There will be. Trees don't climb to the sky and drills never reach the opposite side of the globe. There is always a reversal.
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