Is cheap peak oil here already?
After the expansion of the BRICS group to include the Middle East and a bunch of other countries, the trajectory of global oil production is now a central question for analysts, with a particular focus on the potential fate of the petrodollar.
While it’s hasty to definitively foretell the petrodollar’s future, one thing is certain: OPEC has become an integral part of the BRICS alliance. This integration ushers in a significant shift wherein OPEC’s oil will find its primary route to BRICS nations (namely China, India, and Southeast Asia, poised for sustained growth), while the remainder will make its way to Western shores.
In this article, we will cover the fact that now, with the expansion of the BRICS, coupled with the expectation that shale oil in the United States is nearing the end of its production plateau, we may find ourselves in very unpleasant situations in Western countries.
So… What about the oil and gas destined for Western consumption in the coming years?
The answer lies in the well-known… as you might have guessed, shale oil and gas resources of the United States. If the OPEC will exchange their oil among their friends and members, while the rest of the countries will have to rely on the other major oil production source, this is, US shale oil. Thus, assessing the prospective performance of future shale oil production is essential, particularly given the geopolitical dynamics that have introduced uncertainties about supply security, often overshadowing price considerations.
Shale oil has played a pivotal role in global oil production’s growth over the last decade, contributing nearly 100% of the increase. A graph illustrating this trend can be found here: Graph Link
In this complex geopolitical landscape marked by intense competition among major blocs and ongoing trade and military conflicts, the significance of both actual oil production and optimistic production forecasts cannot be emphasized enough. These factors collectively aim to alleviate the pressures that could lead to a sharp increase in oil prices.
The release of Western countries’ oil reserves in 2022 managed to mitigate the precarious surge in oil prices. However, in 2023, the Strategic Petroleum Reserve (SPR) is operating at historically low levels and is no longer as effective.
U.S. crude oil inventories have reached historical lows, and global inventory reduction has accelerated, adding complexity to the situation. While high oil prices may lead to increased drilling, prices above $80-85 per barrel are hindering drilling efforts.
With the good years of shale oil production likely waning and inventory levels rapidly decreasing, the emergence of the new BRICS countries and the probable reduction in shale oil production over the next decade pose significant challenges for Europe.
What to do then? If we live in a western developed country?
Outside OPEC, the rest of the non-OPEC world largely relies on ultra-deepwater and oil sands production. However, ultra-deepwater production faces challenges due to its initial high yield followed by rapid decline, as illustrated by Brazil’s production forecast.
This analysis underscores the delicate nature of the current situation, with the future of shale oil production uncertain and various challenges ahead, especially for Europe and non-OPEC producers relying on unconventional sources.
The likely scenario unfolding is one in which there will still be access to oil for Western countries, at least until around the year 2030. However, the challenge lies in the nature of shale oil production. With the prevalence of lateral wells, when the production plateau comes to an end, it is expected to drop suddenly. This means that the United States, which is currently one of the world’s leading oil producers, could see a substantial decline in its ranking and might prioritize domestic consumption.
Under these circumstances, the cost of oil is expected to soar, and it’s plausible that oil-exporting nations may become hesitant to accept payments in a continuously printed and clearly inflationary fiat currency. Tough times could indeed be on the horizon.
However, there is a silver lining. If you manage to become part of a community that is well aware of this situation and acquire assets that can weather these challenging times without counter-party risk, such as silver, gold, or Bitcoin, you may be better equipped to navigate the storm.
For more information on this, visit this article we wrote on how to protect yourself for that