Subscriber George Noble has asked me to come and speak at a X (twitter) space this Friday, 4pm London time. My first time on a Twitter Space - and if you have some uncontrollable urge to hear me speak for more than 10 minutes - then this is your chance!
As mentioned previously, I was caught off guard by the OPEC increase in production. There is a certain irony to this, because way back in 2014, I was shorting oil producers waiting for an increase in OPEC production then. At the time it was a big money making trade for me. One of the reason that I was surprised by OPEC action is that back then US oil production was surging, but not so much today.
At the time capital was pouring into the US Shale industry. Saudis needed to act and get the oil price down. From 2011 to 2014 the oil had been going sideways o, so everyone just assumed the price would stay there. The collapse drove many high cost producers out of business. In recent years oil prices have been much lower than there were then, and costs much higher, and much of the capital has left the industry - so the move is really surprising.
Back in 2014, I thought lower oil prices would drive a big slowdown or even a reversal of US oil production. At the time many of the shale producers were just eating through capital and for me the industry looked like a sham. But despite lower prices, US oil production has continued to grow (see top chart). This has led to oil really underperforming gold, which I think has more closely followed inflation in the US and elsewhere. From a macro perspective, oil has very rarely been this cheap against gold.
In fairness to oil, gold looks expensive against everything but US financial assets - but that is another story. But there were a few things that have changed about the oil story.
