- The largest US banks predict that the price of Brent crude oil will be between $90 and $94 in 2024.
- In fact, the price fell to $70 a barrel in the third quarter, making many U.S. oil projects unprofitable, forcing companies to reduce the number of drilling rigs.
- JPMorgan underestimated demand by 600,000 barrels per day in the third quarter of 2024
- BRICS countries including China import oil from Iran bypassing Western supplies and banking systems
- BRICS and OPEC are creating a new blockchain-based trading system that could change global energy markets.
Oil price and demand forecasts for 2024 from major U.S. investment banks, such as Barclays, JPMorgan and Goldman Sachs, have become wildly inaccurate, and the return on investment in developing U.S. oil fields is not justified. more and more.
Among other factors, the BRICS countries play their role in many ways, and the growing oil trade between China and Iran is the most telling example.
All of this probably has large-scale plans, and there are signs of an actively developing alternative economic union and a blockchain-based financial system.
What’s on the table today about oil prices and demand
Late last year, 2023, US investment banks and energy agencies presented their forecasts for oil demand and prices in 2024.
Barclays is the London-based bank that finances most of Europe’s energy trade and predicts the average price of Brent crude will reach $93 a barrel in 2024.
Most other forecasts coincide with these: the US Energy Information Administration (EIA) predicted the price would also be $93, Bank of America predicted an average price of $90 per barrel, and Goldman Sachs predicted $94 per barrel.
The third quarter of 2024 is coming to an end and we don’t see the price between $90 and $94, and more so, the price has gone from $90 in April to $70 now.
This calculation error by investment banks which predicted that the average price of a barrel of 93 to 94 dollars in 2024 is much more important than it seems. It is fundamental that their energy sector clients have established capital expenditures and production schedules for the energy business areas and have made the corresponding CAPEX investments.
But how could such large investment banks have made so many miscalculations, and what do blockchain and cryptocurrencies have to do with it? They likely play a key role, they largely made this happen, and even bigger news lies ahead.
Oil producers now face two problems
The first, to be fair, is the actual decline in demand associated with the electrification of transportation in China and the available Chinese clean energy technologies.
China is actively carving out a niche with its alternative solutions and exporting them to developing countries. They should have become a huge new market for oil companies as they developed, but that is not the case due to the electrification of transportation and Chinese clean energy technologies.
The second aspect is less obvious, although we constantly hear open reports about it, namely the BRICS countries, which are also changing their preferences for energy suppliers.
It is important to note that clean energy alternatives have not replaced oil, oil demand is still high, but it is moving away from US suppliers and US banks no longer see these BRICS markets.
JP Morgan, specifically for Rison, explained that they had also been wrong in their forecasts, that global oil demand was 600,000 barrels per day lower than they had forecast for the third quarter of this year and that they had also overestimated the average oil price by $94 per barrel.
For consumers, the fact that oil prices are much lower is generally good news, and it could also have an impact on inflation and the fact that the FED has cut rates.
However, the opposite is true for producers, since most large oil fields in the United States become profitable at $90 per barrel and start losing money at $70.
Look, this is a chart of break-even oil prices in the United States, where the blue line shows where the price of WTI oil needs to be for the wells in these fields to be profitable.
WTI is the West Texas Intermediate oil price which is the benchmark for oil prices in the United States and yesterday their index closed at $67 and in the Permian Basin oil producers need at least 70 $ before we can start taking advantage of new wells throughout the United States. fields.
These breakeven points are too high to justify new CAPEX investments in the oil fields, so this producer is simply scaling back its plans. We are seeing US energy companies reduce the number of active drilling rigs in the US. This reduction was seen in five of the last six weeks, having already reduced that number by 20% last year.
So new capital investment is declining and will likely continue to decline, rig counts are falling, and companies are going to lay off employees, all because last year U.S. banks and energy companies saw their forecasts of $90 incorrect.
Reasons for forecast inaccuracy and impact of BRICS
But how could they be so inaccurate, especially as prices continue to fall? In fact, they weren’t entirely wrong about the demand for oil, and with that demand, the price of oil really should be the same. However, they were wrong about who would respond to this request, which we talked about a little earlier.
It turns out that the BRICS and OPEC countries, without official declarations, but not without numerous clues and initiatives, are creating an alternative economic space, you guessed it, with a financial system based on blockchain, this which has never happened before since creation. petrodollar.
Today, with this new trading system, they are bypassing Western banks and Western energy companies, and Western trading systems are shrinking. They no longer need American oil suppliers and, of course, they no longer need American banks. For example, China is importing record amounts of crude oil from Iran.
Look at this chart which shows that last month in August, China imported 1.75 million barrels per day, a 50% increase from the previous month and an all-time high.
This is also confirmed by an interview with an expert from NPR, with an explanation of the reasons for this miscalculation by JP Morgan. They say Chinese oil demand has been lower than expected. However, as you can see, this is only part of the truth, as demand from China has not decreased, it’s just that they are doing business with Iran and others BRICS countries instead of American suppliers.
Barron tries to understand the implications and compares the forecasts of British Petroleum and OPEC.
BP, one of the world’s largest oil companies, says global oil demand will peak next year, then stabilize, then fall permanently after that. OPEC, on the other hand, believes the opposite, that the demand for oil is increasing and that it will not end, or to be more precise, that the demand for oil will grow for another 20 years.
Barron wonders how such serious players can differ so much in their estimates, but as you have probably already figured out, there is no contradiction. For transnational oil and gas, BP’s demand will decrease, for OPEC, demand will increase because it deprives BP and other Western oil giants of sales.
This means that global markets are suddenly slipping out of the hands of Western energy producers and, moreover, if this trading system evolves into a private blockchain, they will no longer even know the trading volume, who is actually buying what, who is buying what. buy from whom, how much is bought and sold.
Even current market estimates, before the transition to a private blockchain and when trading is mainly in yuan, the numbers no longer add up. OPEC says oil demand in the first quarter was 103.5 million barrels per day, while the EIA says 101.7, which is a very big difference in numbers and a field of maximum uncertainty for investors.
The likely BRICS vector and blockchain as a key technology
We will probably have to get used to the fact that an increasing share of global oil trade will take place outside the US and European banking systems. In turn, U.S. industry executives and investment banks will now be unable to understand even basic information such as the scale of demand, how and by whom that demand is met, and what prices are paid. .
Economic sanctions against Venezuela, Iran and other countries have only prompted oil producers to find ways to get around them. China and Iran have found a way to bypass Western banks and transportation systems. Today, other sanctioned countries or those who fear being sanctioned are joining the process.
In turn, the United States’ urgent adoption of Bitcoin and its importance in maintaining its economic leadership is becoming increasingly meaningful. It is likely that the BRICS countries are not working on an alternative blockchain-based trade and financial system to move everything to Bitcoin.
Even though it is a decentralized system and perhaps the safest and most trusted crypto asset on the market, the United States and American companies are among its largest holders, which means that its use may not achieve a radical competitive advantage.
At the same time, China’s massive purchase of Bitcoin may suggest that this option is possible, or at least Bitcoin will play a key role in this system even if they create their own blockchain with their own native cryptocurrency for each type of transnational trade.
Conclusion
We may be watching right now as the world accelerates toward a new order of distributed trading systems, political blocs, and blockchain-based cross-border digital currencies, where blockchain was the very last piece of the puzzle needed to make all this possible.
If so, blockchain will change more than perhaps even the most optimistic crypto enthusiasts, moving well beyond decentralized finance towards a decentralized and distributed global economy and politics.
However, in times of such fundamental change, we must be especially careful and vigilant, and critically evaluate every aspect of every event, going beyond what is said about it and thinking about anything that might find behind.
Stay tuned for a complete and detailed analysis of the fundamental processes.
