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Unlike 1973, and its oil embargo against the United States, there is no supply threat from the Middle East. Consequently, only a demand unknown moves the price of crude oil. Permian/Delaware has displaced the Middle East as a source and even Mexico imports U.S. production. 

This has caused euphoria in Santa Fe among lobbyists who prepare for a new Governor from the Democratic Party.

She will have to decide that the rhetoric of renewable energy is no match for her budget bounty made up of revenue flows from Lea and Eddy Counties. Token demonstrations for higher taxes from oil and gas producers no doubt will occur, but in Santa Fe only the price of oil is the threat that can take the punch off the table.   

And here the connected experts publicly answer reporters that the Permian is an exceptionalism in oil and gas: it will never become a basin in a downturn.   

However, all the charts and slides converge on upward supply without much on demand to offset the upward slope. It is almost impolite to ask where is the market for the massive supply of oil now and in the near-term future?  What about demand for oil?
China? Not quite as electric cars – yes, Tesla or Chinese versions appear as I-Phone-like technology against the combustion engine. 

California, with 40 million people and seven states following its waiver, can set miles per gallon requirements on engines towards zero emissions.

This is the meaning of President Trump’s policy to force California back into the Union where Washington decides on what the combustion engine can and will do.

This a decisive battle over Climate Change and the “Resist” (Trump) movement of the Democratic Party.

After all, it is California which pledged to support the Paris Climate Change Treaty which Trump opposed. 

The struggle between the Feds and Sacramento over the right to set engine capability for 80 miles per gallon is the most critical determinant of American demand for oil in contrast to the electric alternative. 

It is also perceived as a status quo versus breakthrough in the Climate Change Wars. This is what is at stake in 2020 Presidential election.

Climate Change translates into technological change from a carbon-based economy to an alternative. Accordingly, the  combustion engine must be replaced. The Tesla legions, in California where one out of five cars sold is electric, march under the banner of Climate Change.

The geopolitics of oil prevails in Summer trading.   Anticipating Nov. 4, when sanctions against Iran’s export of crude oil begin, the price moves up on assumptions that one million barrels of oil will need buyers of its oil in violation of U.S. sanctions.   
But Europe will buy up to 500,000 and Asian markets should take the rest.  

This will eliminate an oil shortage while Saudi Arabia has pledged to supply more oil from its “spare capacity” if needed. Russia needs hard currency under new U.S. banking transactional sanctions.

It will doubtless expand exports. The traders who are speculating with options or buying full oil tankers (Goldman Sachs) will take losses.

This will weaken further the Algiers Agreement of OPEC and Russia to withhold oil production for higher prices. It is also the last chance in supply-demand action for profitable trades and for short-term profits for Southwest shale producers.

This writer forecast 2019 as a downturn in the oil industry as early as April 2017. 

Only geopolitical tension mixed with resource wars could interrupt a 2019 sharp decline in prices as once again, since 2014, the world confronts discouraging demand for oil and over-supply.  

Look for a price forecast, and more, in this column in the October issue of Energy magazine. 

Dr. Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy and the State of New Mexico Natural Gas Export Coordinator. The opinions expressed are his own.

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