Badger says> It has been said that investors, in bonds, need to get an interest return higher than inflation. If true and inflation is running at 8% then expect world wide interest rates of 8.25% or higher. That includes Australia.
I am quite concerned by this statement. Because I can't see a hole in the argument. And 8% interest rates would be devastating for Australia. Our only hope is that inflation goes down. But as the cost of commodities feed into inflation, I don't see this happening.
In other news I found an interesting graph. Which shows the US output of oil
Using the powers of graphic manipulation. Badger managed to draw some lines on it and expand it. (Badger is quite proud of himself) The Y axis shows US Operable Crude Oil Distillation Capacity (Thousand Barrels per Calender Day) The X axis shows year. I added the black line.
I think what it is saying is that the last time the US was producing this much oil was back in 2015. And it took 5 years to get output up to where we were in 2020.
Does this mean that it will Mid 2027 (5 years from now) before the US is back to pre covid US oil production? Hopefully not. Hopefully it's sooner. Perhaps we have better technology now. Perhaps infrastructure has been already built and just needs to be switched on. But even if they reach this point by 2025 (2.5 years time). We still will have a deficit due to Russia being increasingly off the market.
Is there another way to estimate US future oil production? If you follow the rig count in the US you will see we will the rig count going up in a straight linear line. I estimate that the rig count we be back a pre covid levels by November 2022. 2/3rs of fracking oil comes from oil drilled in the last 2 years.So we may be looking at 2.5 years to get back to pre covid oil production rates.
In other news Interest rates are not going up. Well that's according to Japans central bank (*2). Perhaps they will change their tune as the yen plunges? The EU has also not put up it's interest rates. So, unless the EU start buying Russian gas again they will have to keep buying gas from the US. And if they don't follow the US and put up their interest rates the Euro will lose value. Not good when you are buying gas form the US.
Conclusion EU interest rates are going to go up.
in other news (2 months ago - 31st March 2022 *1) The US decided to tap it's strategic reserve to the tune of of 1M BOPD for six months(*1). That is set to end in October, by my calculation. Right before the US mid term elections. I can't see this happening. But if it does, and they start to fill the reserve back up at the same rate. We can expect to go from 18M+1M = 19M BOPD to18M-1M = 17 BOPD. In which case oil prices might be "elevated". Perhaps with a low carbon future, the reserves need to be lowered? As of 4th May 2022 the reserve had approximately 545.4 MMB or they can continue to kick the can down the road for another 1.5 years at the current draw rate of 1 MMB per day, by my calculation. ie the start of 2024 (https://www.energy.gov/fecm/strategic-petroleum-reserve-9)
Can anyone see a mistake or flaw in my logic? Have I missed something? Anyway you cut it, interest rates are going to go up. And building large infrastructure projects to tap oil on a big scale to reduce oil prices, require large loans. It's a catch 22.
After consultation with allies and partners, the President will announce the largest release of oil reserves in history, putting one million additional barrels on the market per day on average – every day – for the next six months.
(20min delay)
