The myth behind the soaring oil price

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Oil is the most complex commodity in the world, and its complexity exceeds the imagination of everyone. I dare not say that an article can sort it out, just throw a few myths to think about it together.

In 2008, the highest oil price was 140 US dollars/barrel, and the Middle East countries made a profit. The money-making effect stimulated capital to start a large investment, and the United States spent more than 5 trillion US dollars to extract oil in North America.

The Americans are good at innovation, developed hydraulic fracturing and horizontal drilling technologies, significantly increased their production capacity, and seized market share in the Middle East.

OPEC, led by Saudi Arabia, is doing its utmost to increase the production of oil from 2014. It has plunged the price of oil from more than US$100 to the lowest level of 26 US dollars in 2016 and tried to bring American oil companies to bankruptcy.

During that time, I always emphasized that oil prices would not stand at $60, because $50-$60 oil prices would drag down US oil companies while maintaining the food and clothing of OPEC oil-producing countries. Once more than 60 US dollars, the United States must awaken 10 million zombie drilling.

The price of oil remained below 60 for 3 years. But now, the situation seems to be different. The oil price stood at $60 and it was almost half a year. The balance seems to have been broken.

My guess and feeling, the United States seems to have begun to fight back.

Moreover, this counterattack is a barrier to OPEC and Russia. The U.S. to seize market share is the general trend. In the next few decades, the world will be flooded with oil and gas exported by the United States. In other words, the U.S. will control the international oil prices more and more.


To say oil prices, we must distinguish between long-term and short-term. Looking at the scale of 20 to 30 years, I think it must be bullish, even if the new energy vehicles develop rapidly, it is not enough to change this fact.

In the short term, high oil prices seem to be what the United States, Russia, and Saudi Arabia all want.

Needless to say in Russia, economic development depends on the support of oil prices, otherwise why should OPEC engage in limiting production? In particular, it is now being sanctioned by the United States and urgently needs high oil prices for emergency relief.

Saudi Arabia also has its own small calculations in the short term. Saudi Aramie, the Saudi royal family’s heirloom, needs high oil prices to support high valuations to IPO.

Saudi Aramco is the world’s largest oil production company and has the largest oil field in the world, contributing 20% ​​of Saudi Arabia’s fiscal revenue and 80% of its revenue. How much this guy can own Baidu. Now the Saudi royal family wants to take out 5% of the shares to IPO, valuation of 2 trillion US dollars … equivalent to 20 Sinopec.

In short, high oil prices will directly boost Saudi Aramco’s valuation. The higher the valuation, the more money the Saudi royal family will receive. It is so simple and crude.

When it comes to IPOs, all exchanges are rushing for Saudi Aramco to come out on their own homes, like asking Fortuna to enter the house. However, Saudi Aramco’s financial status has always been a mystery and does not want to be known to the outside world. Once listed, it means to be naked. Therefore, the Saudi royal family seems to have recently talked privately with China and Russia to see whether they can trade directly and privately without IPO. This is a digression.

In the United States, high oil prices not only meet long-term strategies, but also benefit short-term economic growth. You see that since the rise in oil prices, the United States’ PCE (core inflation index) has approached the Fed’s 2% target:

Inflation is a bad thing for the people, but it is definitely a good thing for the rulers. First of all, the United States has published nominal GDP, which contains inflation. As long as inflation rises, GDP will rise, and it looks like it has a face. Trump absolutely loves this.

The Fed also hopes that there will be inflation. Yeah has been looking forward to it from a few years ago. The 2% inflation target has already spoiled. As long as inflation gives power, one can safely and boldly raise interest rates gradually as planned, and restore monetary policy to normal levels before the next crisis. This is the Fed’s goal.

There is also Iran, Trump is now in the eye, desperate to tear up the Iran nuclear agreement, continue to impose sanctions on Iran, but also let the oil price has risen in the short term reason.

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