Tue. Apr 23rd, 2024

Mainstream media outlets tend to make it sound as if all our economic problems and, more specifically, energy inflation are temporary problems related to Russia’s invasion of Ukraine.

The reality is that much of the economic situation we see today was occurring prior to Russia’s invasion of Ukraine. The conflict gives politicians an easy out to tell their voters that it is not their policy decisions that are the problem but rather the “evil monster” Putin.

Everyone is fully aware that gasoline prices have skyrocketed. So what is happening with global Oil production? In fact, world crude oil production has been falling behind needed levels since 2019. See this in the chart below and learn more here.


The growth in world crude oil production shows an amazingly steady relationship to the growth in world population since 1991. The major exception is the decrease in consumption that took place in 2020, with the lockdowns that changed consumption patterns. These Covid restrictions may be having a more permanent effect. This suggests that a global change is happening in our future economic fortunes.

Quarterly crude oil data suggests that few opportunities exist to raise crude oil production to the level needed for the world economy to operate at the level it operated at in 2018 or 2019. The chart below shows quarterly world crude oil production broken down into four groupings: OPEC, US, Russia, and “All Other.” All groupings have yet to recover to pre-Covid levels.


Growth in US crude oil production has been all about politics. Under the Trump administration, Oil production was encouraged. Since the Biden administration, this has all reversed, even taking into consideration the Covid “pandemic.” See this in the chart below.


The previous charts merely show what is happening in Oil production. The question is why production levels are not returning to trend line growth – even after Covid? The answer is – that if one does not invest in new Oil exploration and production, one will not get any new Oil coming to market.

Global Capex for exploration and production companies is expected to drop by up to $100 billion in 2020, about 17% less than 2019 levels. By 2021 they will not recover much from this13 year’s low. See this breakdown in the chart below and learn more here.

Upstream CapX Investments Historical 2021One may ask why all this disinvestment in energy production, since the pricing power and demand seem to exist in the market. The answer is quite simple – climate change. The world leaders are under the belief that it is imperative that we as a human race stop using carbon-based fuels to save the planet.

Whether you believe these investment policies would significantly affect climate change or the climate change narrative given by mainstream media is another story. Regardless of any genuine Oil supply-demand issues or even geopolitical concerns, Oil is set to go significantly higher in the next year or two ahead.

Where Oil prices eventual go is hard to tell for sure. On the one hand, these supply shocks will force prices significantly higher. On the other hand, who will need Oil if we are in a global recession (or worse)?

See more Chart of the Day posts.

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