Global Recession Now Inevitable? Oil Will Collapse, Here's How Low | Doomberg
What this covers
President Donald Trump wants "cheap oil" and he's going to get it, says Doomberg, Head Writer of the Doomberg Substack.
*This video was recorded on April 15, 2025
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0:00 - Intro 1:02 - Trade War 7:25 - Oil Prices, Trump, and OPEC 16:26 - Oil Surplus 21:02 - Transport 23:08 - $40 Oil? 28:32 - Iran 30:20 - China 34:05 - Ukraine 35:20 - Closing Thoughts
#economy #oil #investing
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China is better positioned to win the escalating US-China trade war than mainstream media suggests, because it controls critical supply chain monopolies while being better able to absorb economic pain; simultaneously, OPEC has effectively ceased functioning as a cartel, and oil prices are headed to $50/barrel as a result of deal-making between the US, Saudi Arabia, and Russia.
- China has spent years preparing, controls monopolies in rare earths processing and advanced materials, and can absorb pain longer than democratic societies; the US depends on Chinese supply chains while China can source alternatives
- OPEC's April 4th announcement of accelerated production cuts during peak market panic signals a backroom deal among the three largest producers (US, Russia, Saudi Arabia) to control oil prices downward
- Crude oil demand is being displaced by cheaper natural gas and liquids from co-producing regions; in a post-OPEC world, natural gas will become more valuable than oil
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Trade wars and escalating tariffs are not bullish for demand and will create recession-like conditions; supply chain seizure happens when there is uncertainty around prices and who will bear tariff costs, causing just-in-time systems to lock up reminiscent of (but not to the same depth as) pandemic supply chain disruption.
“We are in a recession. Um we have plenty of industry executives that we you know check the channels and for many many weeks we've been hearing that supply chains are seizing up reminiscent of co perhaps not to the depth that we saw during the co um response but supply chains are seizing up. Tariffs are disrupting supply chains. Um who wants to own title to something that has to cross a border um in this environment? You don't know what that price is going to be, who's going to pay it. um can you pass it on to your customers? And when there's huge uncertainty and in just in time supply chains, you get seizure, you get lock up.”
OPEC's functional existence ended because its effort to artificially inflate crude oil prices was undone by co-product economics in the Permian where producers also extract natural gas, liquids, and NGL which can be given away at cheap prices; when crude was artificially high via OPEC, people substituted crude with these cheaper products, undercutting crude demand, and thus OPEC's existence made its own continuation impossible.
“it's its whole effort to artificially inflate crude oil prices was undone by co-product economics in places like the Perian where yes, they're producing crude, but they're also producing natural gas, liquids, and natural gas and those could be given away at dirt cheap prices because crude was artificially high. Well, people started substituting crude with those very products either by changing the molecules or changing the engines and that undercut the demand for crude.”
A regime change in Venezuela could bring millions of additional barrels per day of crude to market in record time, as Venezuela has the largest proven oil reserves in the world but produces only ~1 million bbl/day vs historical 4 million due to mismanagement, while Chevron and super majors with advanced technology are assembled next door in Guyana.
“Venezuela has the largest proven reserves uh in the world. Um it's a basket case domestically. Um it used to produce 4 million barrels a day. It barely produces one today. Um with the most advanced technology of the Chevrons um and the super majors are assembling right next door in Guyana.”
Resolution of the war in Ukraine would be bearish for commodities and energy because supply comes onto the market; assuming it's resolved relatively peacefully and diplomatically (not via military force), lifting of sanctions and frictions imposed on Russia would bring more molecules to market, dampening energy prices.
“Sure. Sure, it's it's bearish because supply comes onto the market, you know, assuming it gets resolved relatively peacefully, diplomatically, I guess, is the word that I'm thinking. And then it's not just a imposition by military force of Russia's objectives. Um and we see a lifting of the sanctions and all of the frictions that have been imposed upon Russia that in isolation would be bearish for for energy prices for sure because Russia is a very large producer and anything that brings more molecules to market dampens the price.”
Russia and China are perfectly complementary in the types of goods and commodities they produce, and together they dampened their own exposure and risk profile in a way that didn't exist before the Ukraine war, so China has observed the sanctions on Russia and prepared itself for worst-case scenario risks.
“Russia and China are perfectly complimentary in the types of goods and commodities that they produce. um together they dampened their own exposure, their risk profile in a way that perhaps didn't exist before the war in Ukraine. And China has observed the sanction strategy imposed against Russia and has decided to prepare itself for worst case scenario risks such as these.”
China has a far better chance of winning the trade war than current media coverage suggests because it has had years to plan, can diversify commodity sourcing from South America, Africa, and Asia for items like soybeans and LNG, while the US relies on Chinese monopolies in critical supply chains like rare earth magnets, processing, and military-grade metals and alloys that China has deliberately worked to control.
“China is far more able to find alternative sources for the things they buy from the US... China is far more able to find alternative sources for the things they buy from the US. They have been purposely diversifying their commodity inputs. South America, Africa, the rest of Asia. So things like soybeans and LNG and coal.”
Organizations like the IEA and energy experts on social media perform superficial first-order level analysis by counting rigs without correcting for advances in technology that increase incremental oil per rig, and this leads to false readings of the global economy and crude demand trends.
“It's like counting rigs and thinking that is what it used to mean. No, because you're not correcting for advances in technology and how much incremental oil you could get out of a rig. And so there's a very superficial first order level analysis that organizations like the IEA does and that many, you know, so-called energy experts uh on social media cling to, but you have to be aware of what's changing.”
Trump's tariff war is fundamentally about preparing for war with China by reshoring critical militarily-sensitive supply chains; the tariffs on aluminum, steel, and automobiles are not primarily economic but military-adjacent because these materials are needed for tanks and car factories can be converted to military vehicle factories during wartime, as Germany is doing.
“There's a reason why, by the way, if you look carefully at what Trump is doing, this tariff war is all about preparing for war with China. Um, the US Department of Defense, the Pentagon has uh lamented the offshoring of critical militarily sensitive supply chains for decades. Trump has vowed to fix that. I think the Pentagon fully supports him in this initiative. And if you look at what he is tariffing outside of China, aluminum, steel, automobiles, these are things that have they're very military adjacent supply chains, right? You need those materials in order to build tanks. And you convert car factories to military vehicle factories during times of war, which is Germany is doing today.”
$50 today is not what $50 was five years ago due to inflation; $50 oil in current terms is equivalent to roughly $30-35 oil from a few years ago, which would be below the break-even price of production for most producers unless natural gas becomes more expensive, in which case the Permian's break-even price on oil comes way down.
“$50 today is not what $50 was 5 years ago. We've had this bout of inflation in between. Yeah. $50, you have to think of $50 as as more like $30 oil or $35 oil a few years ago. And that's getting that's getting below the break even price of production for most people unless natural gas becomes more expensive in which case the perian's break even price on oil comes way down.”
The US has not won a war in a very long time; the US won the kinetic part of the Iraq War but lost the peace; the US was run out of Afghanistan and Vietnam; NATO has lost the war in Ukraine; the US tends to get into wars thinking they'll be quick and easy, overestimate its abilities, and then get stuck.
“You know, the US has not won a war in a very long time, David. Um, and it's weird that we keep getting into them.”
When there's uncertainty and just-in-time supply chains, you get supply chain seizure and lock-up; nobody wants to own title to something that has to cross a border in this environment because you don't know what the price will be, who will pay it, or if you can pass it on to customers.
“Um who wants to own title to something that has to cross a border um in this environment? You don't know what that price is going to be, who's going to pay it. um can you pass it on to your customers? And when there's huge uncertainty and in just in time supply chains, you get seizure, you get lock up.”
China has a far better chance of winning the trade war than contemporary media coverage suggests because it has had years to plan, can find alternative sources for US inputs like soybeans and LNG from South America, Africa, and the rest of Asia, while the US buys critical supply chain inputs from China where China holds monopolies in magnets, metals, and alloys used in military supply chains.
“our view is that China has a far better chance of winning the trade war than the current contemporary media coverage perhaps is giving them credit for. Uh, first of all, they've had years to plan for it. Um, second of all, um, if you look at the the distinction between what we buy from China and what China buys from us, China is far more able to find alternative sources for the things they buy from the US. They have been purposely diversifying their commodity inputs. South America, Africa, the rest of Asia. So things like soybeans and LNG and coal.”
The US has not won a war in a very long time; the US won the kinetic part of Iraq but lost the peace, got run out of Afghanistan and Vietnam, lost the war in Ukraine, and keeps getting into wars thinking they'll be quick and easy while overestimating US abilities.
“the US has not won a war in a very long time, David. Um, and it's weird that we keep getting into them. What do you mean the US has not won a war in a very long time? Can you elaborate? Would you name me the last one we won? Okay. I guess Iraq. I suppose we won the the kinetic part of the war, but we lost the peace. Sure. We got run out of Afghanistan, right? I mean, I guess Granada counts, but you know, we we we we've lost the war in Ukraine. Um NATO has lost the war to Russia and Ukraine. Like it we get into these wars thinking they'll be quick and easy. We overestimate our abilities and then we get stuck.”
Consumer expectations for inflation have increased, which partly explains why the consumer sentiment survey was so bad in the recent month prior to this recording.
“Consumer expectations for inflation are up. Uh this is partly the reason why the consumer sentiment survey was so bad last month.”
The PLA published a provocative video in recent war games simulating the destruction of Taiwan's largest LNG import terminal and one of its largest natural gas storage facilities, signaling a strategy to cripple Taiwan's energy sector through direct targeting of critical infrastructure.
“in the latest exercise, the PLA published a very disturbing video which few commentators have picked up on but what we're going to write about and they they in their war games drill they showed a video of the PLA simulating the destruction of Taiwan's largest LG import terminal and one of its largest natural gas storage facilities. Of course, the two are very related and nearby each other.”
China is racing to achieve the ability to produce its own semiconductor chips, and once it has this capability, the risk of moving on Taiwan decreases for China but increases significantly for the rest of the world.
“what China is really racing to achieve is um is is the ability to produce its own semiconductor chips. And once it has that and it's getting very close, then the risk of quote moving on Taiwan becomes far less uh of a risk for China and far more of a risk for the rest of the world. Because if China is self-sufficient in semiconductor chips and the rest of the world is heavily dependent on Taiwan, um there is a a a a real window of opportunity for China to move on Taiwan with maximum pain for the rest of the world”
The idea of going to war with China while China controls all US military supply chains is fundamentally irrational from a strategic perspective.
“Um we're going to get run out of Ukraine. The war in Ukraine will be settled militarily uh if a big large peace settlement that I just described is not achieved. Um and yet here we are talking about going to war with China and they make all of our military supply chains. It's um it's it's crazy.”
Goldman Sachs' oil price forecasts below $40/barrel in extreme scenarios are a contrarian indicator; when too many analysts make dire forecasts, the bottom is typically near, as this is not the type of headline you see at market tops.
“When you if I see too many of those headlines, I'll think we'll be close to the bottom. Um that's sort of a classic. That's not the type of headline you see at, you know, at the top.”
If the Ukraine war gets resolved peacefully through diplomacy (assuming Russian military victory is not imposed by force), sanctions on Russia lift and supply comes back onto the market, which is bearish for energy prices because Russia is a very large producer and bringing molecules back to market dampens prices.
“Sure. Sure, it's it's bearish because supply comes onto the market, you know, assuming it gets resolved relatively peacefully, diplomatically, I guess, is the word that I'm thinking. And then it's not just a imposition by military force of Russia's objectives. Um and we see a lifting of the sanctions and all of the frictions that have been imposed upon Russia that in isolation would be bearish for for energy prices for sure because Russia is a very large producer and anything that brings more molecules to market dampens the price.”
On April 4th, OPEC announced accelerated production increases (bringing forward previous production cuts) at the exact moment of peak panic in the S&P 500 following Trump's 'Liberation Day' tariff announcement, which crashed oil prices; this timing signals a deal was cut with Trump, and the three largest oil and gas producers (Russia, Saudi Arabia, and the United States) are now controlling oil prices together.
“So April 4th was peak panic in the S&P. Um, everybody was shocked by Liberation Day and the size and scale and depth of the tariffs and there was blood on the street as you would say classic sort of um panic sell. And into that tape OPEC announces that they are um bringing forward the release of previous production cuts, basically accelerating production into a slowing economy and it it crashed oil prices as you could see on the screen. Um, you don't do that unless you've cut a deal with Trump.”
The PLA published a disturbing video showing a war games drill simulating the destruction of Taiwan's largest LNG import terminal and one of its largest natural gas storage facilities; Taiwan imports 98% of its fossil fuel needs, imports all of its natural gas, and only has 11 days of natural gas supply domestically.
“the in the latest exercise, the PLA published a very disturbing video which few commentators have picked up on but what we're going to write about and they they in their war games drill they showed a video of the PLA simulating the destruction of Taiwan's largest LG import terminal and one of its largest natural gas storage facilities.”
If China uses missile technologies (possibly exchanged with Russia) to strike Taiwan's LNG import terminal, it could cripple the country rapidly and end the war quickly.
“maybe the missile technologies have been exchanged with Russia and a Resnik missile or two is put into a import terminal like that and then suddenly you've crippled the country and and the war would be over rather quickly.”
Russia, the US, and Saudi Arabia will determine the fate of energy prices going forward, replacing OPEC's former role as price determinant because these three are the largest oil and gas producers and their coordinated decisions determine energy prices in the medium and long term.
“I think Russia, the US, and Saudi Arabia are going to determine the fate of energy prices going forward.”
Natural gas was trading at $23/barrel oil equivalent and NGLs at $46/barrel oil equivalent while crude was at $70, creating a massive 50-100% arbitrage opportunity for anyone who can switch engines to capture those savings, requiring only modest switching (from 7% of 730,000 barrel daily demand cut) to close the price arbitrage.
“natural gas was trading for $23 a barrel oil energy equivalent and NGL's in the US was trading for $46 a barrel uh energy equivalent and crude was at 70. If I can switch an engine and capture 100% arbitrage or 50% savings, I'm going to do that. And it doesn't take much. Look, 750 or 730,000 barrels a day sounds like a lot. It's 7% of global demand. It doesn't take much in the way of switching to drag crude oil prices lower.”
Trump's threat to bomb Iran if it doesn't agree to a nuclear deal is 'Trump being Trump'—he's disorganized and scattered, but his real grand bargain is peace in Ukraine (through Russia) and peace with Iran (nuclear disarmament) in exchange for acknowledging Ukraine defeat and securing Israel's peace, allowing the US to focus resources on China.
“That's Trump being Trump. I would say um it's never quite as it seems. He's all over the place as you know. The grand bargain I think he has in his head is peace in Ukraine for peace with Iran. Russia facilitates a nuclear deal. Iran eliminates its nuclear weapons program. Maybe it gets a civilian nuclear um reactor set from Russia that Russia operates and oversees. Um Russia provides Iran with defense umbrellas. And um and in order to sort of run cover for what is acknowledging basically a defeat in Ukraine, Trump has something to offer the American people for a grand bargain with Russia, which is we've eliminated the threat of a nuclear Iran. we've secured Israel's peace and prosperity and um now we could all focus on China.”
China would be happy with a peaceful outcome in Iran because it imports an enormous amount of oil from Iran, making peace in Ukraine, peace with Iran, and peace with China the best-case scenario where the US can re-industrialize with cheap energy prices.
“if you don't think China's going to be in a hot war, um maybe they come to a sort of a day tant over Taiwan with the US and settle the trade war. Well, China's pretty happy with a peaceful outcome in Iran, too, because they get an enormous amount of oil from Iran. So, our base case, our hope is that Trump is angling for the grand settlement with no wars cuz he he does brag about not ever having started wars. Um, and in his first term, he didn't. To his everlasting credit. Um, and he is trying to end the war in Ukraine. Again, as clumsy as he might be going about it, to his everlasting credit, at least he's trying to stop the war. Um, a world where you have peace in Ukraine, peace with Iran, and peace with China is a war where the US can re-industrialize with cheap energy prices.”
OPEC's existence has become impossible to maintain because its effort to artificially inflate crude oil prices was undone by co-product economics: in places like the Permian, crude and natural gas, liquids, and other products are co-produced; when crude was artificially high, people substituted it with these cheaper alternatives by changing the molecules or engines, which undercut crude demand and made OPEC's price-support strategy self-defeating.
“it's its whole effort to artificially inflate crude oil prices was undone by co-product economics in places like the Perian where yes, they're producing crude, but they're also producing natural gas, liquids, and natural gas and those could be given away at dirt cheap prices because crude was artificially high. Well, people started substituting crude with those very products either by changing the molecules or changing the engines and that undercut the demand for crude. So as OPEC was pulling demand from the market, natural demand for oil was also being undercut molecularly and by swapping engines and ultimately OPEC's very existence made it impossible for it to continue to exist and functionally it no longer does.”
China is racing to achieve the ability to produce its own semiconductor chips; once China becomes self-sufficient in chips, the risk of China moving on Taiwan decreases for China and increases for the rest of the world, because the rest of the world is heavily dependent on Taiwan for chips.
“what China is really racing to achieve is um is is the ability to produce its own semiconductor chips. And once it has that and it's getting very close, then the risk of quote moving on Taiwan becomes far less uh of a risk for China and far more of a risk for the rest of the world. Because if China is self-sufficient in semiconductor chips and the rest of the world is heavily dependent on Taiwan, um there is a a a a real window of opportunity for China to move on Taiwan with maximum pain for the rest of the world before the rest of the world becomes self-sufficient in semiconductors.”
Pentagon officials and figures like Pete Hegseth have expressed deep concern bordering on panic about the fact that the US has outsourced critical supply chains to China and China has beaten the US to the punch on technological development.
“if you look at Pete Hegith's comments about China and their abilities and how the US is behind um there's there's borderline um not panic, panic is too strong of a word, but there's deep concern amongst Pentagon officials about the fact that we have outsourced much of our critical supply chains to China and they have beat us to the punch.”
$50 oil today represents approximately $30-35 oil from five years ago when adjusted for inflation, which is below the break-even price of production for most producers unless natural gas becomes more expensive, in which case the Permian's break-even price on oil drops significantly.
“$50 today is not what $50 was 5 years ago. We've had this bout of inflation in between. Yeah. $50, you have to think of $50 as as more like $30 oil or $35 oil a few years ago. And that's getting that's getting below the break even price of production for most people unless natural gas becomes more expensive in which case the perian's break even price on oil comes way down”
Rare earth processing is dominated by China; it's not just the mining of rare earths but the conversion of mined ore into purified metals where China holds monopoly power.
“Well, not in the supply chains where China has monopoly. Rare earths, like it's not just the mining of rare earths, it's the processing of rare earths into purified metals. China dominates that.”
Trump's tariff war is fundamentally about preparing for war with China, and the US Department of Defense and Pentagon have lamented the offshoring of critical militarily sensitive supply chains for decades; the tariffs on aluminum, steel, and automobiles are militarily adjacent supply chains necessary for building tanks and converting car factories to military vehicle factories during wartime.
“There's a reason why, by the way, if you look carefully at what Trump is doing, this tariff war is all about preparing for war with China. Um, the US Department of Defense, the Pentagon has uh lamented the offshoring of critical militarily sensitive supply chains for decades. Trump has vowed to fix that.”
The April 4th OPEC production increase announcement was reminiscent of 2014's OPEC price war against shale producers, signaling a fundamental change in the pieces on the geopolitical board that serious observers must take note of.
“it was reminiscent of the price war declared by uh OPEC and OPEC plus in 2014 to try to put the SH producers out of business. That was a momentous day. I remember it well. Um you knew something had changed. The pieces on the board had changed. That was a very similar feeling day.”
Oil and gas industry behavior is cyclical: they build stuff during Republican administrations and make money during Democratic administrations; this has been the pattern for decades and will likely continue despite Trump potentially giving them leases and SPR fill incentives.
“the oil and gas industry builds stuff during Republican administrations and then they make money during Democratic administrations. That's just the nature of the beast. It's forever thus. I've been in and around this industry for decades. Um, there will be Trump will give them some candy. They'll get long-term leases of federal lands and they'll refill the strategic petroleum reserve termed out in a way that they have guaranteed profits and they will be taken care of.”
A war is not just about how much pain you can inflict on your enemy, it's about how much pain your enemy can absorb, and China runs a dictatorship and surveillance state where the population will absorb far more pain than the mostly democratic United States before rising up.
“a war is not just about how much pain you can inflict on your enemy. It's about how much pain your enemy can absorb. And look, China runs a dictatorship. It runs a surveillance state. And by definition, unlike the sort of mostly democratic United States, the population is going to absorb far more pain than um we would before rising up.”
A war is not just about how much pain you can inflict on your enemy, but how much pain your enemy can absorb; China runs a dictatorship and surveillance state, so its population will absorb far more pain than the mostly democratic United States before rising up.
“Trump's first order calculation is that we could quote inflict more pain on China because they export more to us than we export to them. But a war is not just about how much pain you can inflict on your enemy. It's about how much pain your enemy can absorb. And look, China runs a dictatorship. It runs a surveillance state. And by definition, unlike the sort of mostly democratic United States, the population is going to absorb far more pain than um we would before rising up.”
Trump wants $50 oil and has made a deal with OPEC to achieve it; the Saudis have agreed, and oil will go to 50 dollars per barrel regardless of previous forecasts.
“Trump wants $50 oil. The Saudis have agreed. There was clearly a deal with OPEC, which I think we should talk about.”
We are currently in a recession; industry executives have reported for many weeks that supply chains are seizing up, reminiscent of the COVID response but perhaps not to the same depth; tariffs are disrupting supply chains.
“We are in a recession. Um we have plenty of industry executives that we you know check the channels and for many many weeks we've been hearing that supply chains are seizing up reminiscent of co perhaps not to the depth that we saw during the co um response but supply chains are seizing up. Tariffs are disrupting supply chains.”
Bluffing China generally does not have a glorious track record, and the US tends to overestimate its likelihood of winning wars quickly, so Trump's trade war strategy may go in a different direction than markets are currently pricing in.
“bluffing China is is is generally not um a glorious track record. So I just think um this could go uh in a different direction than perhaps markets are currently pricing in. China struck back with a 125% retaliator to retire on US goods. Uh this comes after Trump uh enacted a 145% tariff and it's just yeah neither side is backing off.”
Organizations like the IEA perform superficial first-order level analysis that misses changing technology, efficiency, and structural shifts in energy demand; counting rigs as a metric of production capacity is flawed because it doesn't correct for advances in drilling technology that allow far more oil extraction per rig.
“there's a very superficial first order level analysis that organizations like the IEA does and that many, you know, so-called energy experts uh on social media cling to, but you have to be aware of what's changing.”
Chevron and other super majors are assembled next door to Venezuela in Guyana with advanced technology and infrastructure; if a regime change occurs in Venezuela, the super majors and necessary critical mass of services, pipeline companies, and midstream companies are already in place to rapidly exploit Venezuela's reserves.
“Um with the most advanced technology of the Chevrons um and the super majors are assembling right next door in Guyana. Um if we see a regime change, if Madura gets knocked over... that's a huge amount of supply that has been quote artificially taken offline that um is relatively easy to exploit um and it's right there on the along the US Gulf Coast.”
The heart of Doomberg's recent piece 'Early thoughts on how to play energy in a post OPEC world' is the conjecture that natural gas in the US will become more valuable than oil.
“Um the heart of this piece is the conjecture that natural gas in the US will become more valuable than oil. Mhm.”
The only thing that could change the trajectory of oil prices is war with Iran; a war would cause a short-term spike in energy prices that always fades, and the correct trading strategy is to wait for the spike, wait for the worst news, fade the prices down, then buy out-of-the-money puts 6-9 months out because they always fade to equilibrium.
“The only thing that could change the trajectory of prices, and I want to be 100% clear, is war with Iran. Um if we have a war with Iran, you will see a short-term spike in the price of energy. You should not try to gamble on when that war will arrive. It's far better to try to fade those spikes because they always fade. So you wait for the spike, wait for the worst of the news to be over, prices come down a fair bit, and then you buy six or nine month out of the money puts and you're going to have a pretty good trade because they always fade to equilibrium.”
April 4th was the day that OPEC announced accelerated production cuts (released previously announced cuts earlier than planned) into a slowing economy on the same day Trump escalated tariffs, which signals a deal was cut between Trump, Russia, Saudi Arabia (OPEC's largest member), marking the functional end of OPEC as a cartel.
“April 4th was peak panic in the S&P. Um, everybody was shocked by Liberation Day and the size and scale and depth of the tariffs and there was blood on the street as you would say classic sort of um panic cell. And into that tape OPEC announces that they are um bringing forward the release of previous production cuts, basically accelerating production into a slowing economy”
Energy markets are not pricing in a hot war potential between the US and China on the back of escalating trade wars, as evidenced by the WTI chart showing no war premium despite trade war escalation rhetoric.
“Is it is it fair to say then that the oil and energy markets are not pricing in a hot war potential between the US and China on the back of escalating trade wars? Then I don't see it. Um, you know, we we do have some concerns in that regard again, but you show me on the WTI chart where people are pricing inact.”
Trump is gambling on a V-shaped recession where the economy rebounds before the midterms, combined with a smaller federal government, fewer regulations, and cheaper energy, with the tariff wars successfully completed as victories, all before the Republicans face electoral consequences.
“Trump is gambling on a V-shaped recession. We're on the back end of it before the midterms. We have a smaller federal government with less regulations and cheaper energy. Um and the tariff wars will have been, you know, successfully completed. Um that's a gamble. he has a a window of political opportunity where he has largely still strong public support, the classic honeymoon period after becoming president. Um, we'll see if there's a timing mismatch between what he thinks will be a victory in the in the tariff wars and the US emerging from a recession in time for the Republicans to not get wiped out in the midterms.”
Consumer expectations for inflation have risen partly due to escalating trade wars, which could lower if cheap oil prices persist and offset tariff-driven price increases, though this depends on tariff escalation being resolved quickly.
“Consumer expectations for inflation are up. Uh this is partly the reason why the consumer sentiment survey was so bad last month. Um but this escalating trade war, I'm I'm wondering if that's going to actually lower inflation expectations if this continues.”
Russia will be fine at $50 oil, Saudi Arabia will be fine at $50 oil depending on a few other parameters, and China will love $50 oil, so there is a grand bargain to be had between these three nations.
“I think Russia, the US, and Saudi Arabia are going to determine the fate of energy prices going forward. Um, look, $50 oil is fine for many producers. It'll it'll hurt some of the more levered producers and some of the, you know, those on the higher end of the cost curve. Russia will be fine at $50 oil. Saudi Arabia will be fine at $50 oil, depending on a few other parameters. and China will love $50 oil. So, there's a grand bargain to be had here.”
Trump wants $50 oil and will get it; the oil and gas industry builds infrastructure during Republican administrations and makes money during Democratic administrations, and Trump will give them some candy in the form of long-term federal land leases and Strategic Petroleum Reserve fills with guaranteed profits.
“Trump wants cheap oil and he's going to get it. Um, and so, um, you know, I think, um, this helps China, by the way, because China is short oil and so China is one of the beneficiaries of of cheap oil, um, as well.”
The only thing that could change the trajectory of oil prices is a war with Iran; if there is a hot war, oil will spike in the short term, but these spikes always fade to equilibrium, so traders should fade the spike and buy six to nine month out-of-the-money puts.
“the only thing that could change the trajectory of prices, and I want to be 100% clear, is war with Iran. Um if we have a war with Iran, you will see a short-term spike in the price of energy. You should not try to gamble on when that war will arrive. It's far better to try to fade those spikes because they always fade.”
The US is openly calling for regime change in Venezuela; Guyana is disputed territory that Venezuela claims as its own, which would be the spark for escalation to topple the current president of Venezuela.
“there's a crowd assembling and once you reach a certain tipping point in services and pipeline companies and midstreamers and you have this whole armada right next door in Guyana in disputed territory by the way that Venezuela claims as its own which is the spark that you would need to have the sort of um the escalation to topple um the current president of Venezuela.”
Trump threatened to bomb Iran if it does not make a nuclear deal; the grand bargain Trump is pursuing is peace in Ukraine in exchange for Russia facilitating a nuclear deal with Iran where Iran eliminates its nuclear weapons program, receives a civilian nuclear reactor from Russia that Russia operates and oversees, and gets a defense umbrella from Russia.
“Trump threatened to bomb Iran if it does not make a nuclear deal. As you're aware, uh the Iran has in the last couple weeks rejected Trump's proposal to come to terms with the nuclear deal.”
Trump has a window of political opportunity with strong public support (honeymoon period after becoming president); the question is whether there is a timing mismatch between when Trump thinks the tariff wars will be won and when the US will emerge from recession before the midterms.
“he has a a window of political opportunity where he has largely still strong public support, the classic honeymoon period after becoming president. Um, we'll see if there's a timing mismatch between what he thinks will be a victory in the in the tariff wars and the US emerging from a recession in time for the Republicans to not get wiped out in the midterms.”
A regime change in Venezuela with a US-friendly government installed could unlock Venezuela's massive proven hydrocarbon reserves (the largest in the world); Venezuela used to produce 4 million barrels per day but now barely produces 1 million due to political mismanagement.
“one thing that they don't mention in this piece that we have on our radar that would drive prices to perhaps those levels is a regime change in Venezuela and an unlocking of the massive hydrocarbon. Look, Venezuela has the largest proven reserves uh in the world. Um it's a basket case domestically. Um it used to produce 4 million barrels a day. It barely produces one today.”
The US has been 'highly irresponsible' in allowing US-based and Western-based companies to offshore even the most critical supply chains to China, and China has 'greedily accepted that weakness' that the US offered them.
“we have been highly irresponsible in allowing US-based and western-based companies to offshore even the most critical supply chains to China and they have greedily accepted that weakness that we have offered them.”
Goldman Sachs' forecast of oil crashing below $40 per barrel in an extreme scenario is a signal that the bottom may be near; when you see too many extreme downside forecasts, it's typically a sign the market is near capitulation, similar to how extreme forecasts don't appear at market tops.
“Yeah. No. When you if I see too many of those headlines, I'll think we'll be close to the bottom. Um that's sort of a classic. That's not the type of headline you see at, you know, at the top. Let's put it that way.”
Here we are talking about going to war with China, yet China makes all of our military supply chains; this is crazy and demonstrates a fundamental strategic mismatch.
“Um you know, we got run out of Iraq. We got run out of Afghanistan. Um we got run out of Vietnam. we're we're going to get run out of Ukraine. The war in Ukraine will be settled militarily uh if a big large peace settlement that I just described is not achieved. Um and yet here we are talking about going to war with China and they make all of our military supply chains. It's um it's it's crazy.”
In the long run, all hydrocarbons (coal, crude oil, natural gas liquids, natural gas) will trade at the same price corrected for energy content and logistics, and crude oil is the most expensive product on the board, making it the primary target for substitution.
“In the long run, all hydrocarbons will trade for the same price corrected for energy content and logistics. Um there's there's a tsunami of cheap hydrocarbons.”
Natural gas was trading at $23 per barrel oil energy equivalent and NGLs were trading at $46 per barrel oil energy equivalent while crude was at $70, creating massive arbitrage opportunities; if an operator can switch engines and capture 100% of the arbitrage or 50% savings, they will do it immediately, and it doesn't take much switching—750,000 barrels per day is only 7% of global demand—to drag crude oil prices lower.
“A week before this April 4th announcement by OPEC, natural gas was trading for $23 a barrel oil energy equivalent and NGL's in the US was trading for $46 a barrel uh energy equivalent and crude was at 70. If I can switch an engine and capture 100% arbitrage or 50% savings, I'm going to do that. And it doesn't take much. Look, 750 or 730,000 barrels a day sounds like a lot. It's 7% of global demand. It doesn't take much in the way of switching to drag crude oil prices lower.”
If the Russia-China relationship was previously exposed due to lack of complementary commodity/goods production, the Ukraine war has now made them perfectly complementary, and China has observed sanctions on Russia's shadow shipping fleet and has decided to prepare for worst-case scenario isolation risks.
“Um Russia and China are perfectly complimentary in the types of goods and commodities that they produce. um together they dampened their own exposure, their risk profile in a way that perhaps didn't exist before the war in Ukraine. And China has observed the sanction strategy imposed against Russia and has decided to prepare itself for worst case scenario risks such as these.”
Consumer expectations for inflation are up, which is partly why the consumer sentiment survey was so bad last month; if the escalating trade war continues, it could actually lower inflation expectations if accompanied by price reductions.
“Consumer expectations for inflation are up. Uh this is partly the reason why the consumer sentiment survey was so bad last month. Um but this escalating trade war, I'm I'm wondering if that's going to actually lower inflation expectations if this continues.”
Doomberg notes they are not condoning US-backed regime change in Venezuela and acknowledge ethical issues around national self-determination, but point out these concerns have 'never mattered in the past' and question why they would matter now.
“We are not condoning it. We don't think this is the proper you know uh practice of foreign policy. There's all manner of ethical issues and you know national self-determination issues that those have never mattered in the past. I don't know why they would now.”
The energy markets are not pricing in a hot war potential between the US and China on the back of escalating trade wars; the WTI chart shows no war premium despite media discussion of escalation into full-scale conflict.
“Is it is it fair to say then that the oil and energy markets are not pricing in a hot war potential between the US and China on the back of escalating trade wars? Then I don't see it. Um, you know, we we do have some concerns in that regard again, but you show me on the WTI chart where people are pricing inact.”
China is short oil, so China is one of the beneficiaries of cheap oil, and when evaluating oil price direction, the OPEC production announcement is an OPEC story rather than a China tariff story.
“this helps China, by the way, because China is short oil and so China is one of the beneficiaries of of cheap oil, um, as well. Um, and so when I look at oil, I think that's an OPEC story. I don't think that's a China tariff story.”
Cheap oil helps China because China is short oil (imports the vast majority of its oil needs), making China a beneficiary of Trump's push for lower energy prices.
“And so when I look at oil, I think that's an OPEC story. I don't think that's a China tariff story. And and those giant cascading red bars that you see on your screen, Yeah. That happened when OPEC put oil on a burning tape out of the blue, which really made us sit up in our chair and say, "Whoa." That's right. Yeah. Oil went down 7% on the 4th of April. The OPEC announced more production on the same day that Trump escalated tariffs. Yeah. It seemed seemed like the fix was in, didn't it? I mean, that was an odd day for OPEC to announce that. Absolutely. So, uh, you know, this is good for Trump. This is also good for people like me who drive a gasoline car where I'm just speaking on behalf of all people who, you know, own vehicles. Um and so Trump wants cheap oil and he's going to get it. Um, and so, um, you know, I think, um, this helps China, by the way, because China is short oil and so China is one of the beneficiaries of of cheap oil, um, as well.”
The history of contemporary media coverage never quite matches what historians later discover was really going on, particularly regarding diplomatic agreements.
“And look, the history of this is um the contemporary coverage of what's going on never quite matches what historians later discover what was really going on.”
Trump bragged about not starting wars in his first term, and to his everlasting credit, he didn't; he is now trying to end the war in Ukraine, and to his everlasting credit, at least he is trying to stop the war.
“he does brag about not ever having started wars. Um, and in his first term, he didn't. To his everlasting credit. Um, and he is trying to end the war in Ukraine. Again, as clumsy as he might be going about it, to his everlasting credit, at least he's trying to stop the war.”
Ethane-only crackers are using ethane (a co-product) instead of crude naphtha, displacing NAFTA demand.
“be it ethane uh in ethane only crackers displacing demand for NAFTA.”
Doomberg is not condoning US intervention in Venezuela but noting the historical pattern that ethical issues and national self-determination have never mattered in the past and noting that Venezuela regime change is a potential oil price scenario to monitor.
“when when we look we were not condoning it. We don't think this is the proper you know uh practice of foreign policy. There's all manner of ethical issues and you know national self-determination issues that those have never mattered in the past. I don't know why they would now.”
Goldman Sachs' base case is $55 WTI and $51 Brent, which aligns with Doomberg's $50-55 equilibrium estimate.
“Well, here's your substack. I encourage people to check out Doomberg on uh you know, I'll put the link down in the description below. Here's one of your recent pieces as a preview. Early thoughts on how to play energy in a post OPEC world. We talked about the post OPEC world a little bit. Uh can you summarize this particular piece for us and what we can find? Yeah. Um the heart of this piece is the conjecture that natural gas in the US will become more valuable than oil. Mhm. There's a huge amount of natural gas in the perian. Today natural gas is the nuisance that is given away uh in pursuit of oil which has been artificially propped up by OPEC. In a world where natural gas is more valuable than oil because of AI demand for example, oil could become the nuisance that is given away by the incremental driller in the perian and you could really see a crash in prices like Goldman. And that's why I I I pointed that out as the one hedge when we talked about the Goldman article.”
Crude oil prices are down 13.5% since the start of the year (Brent) and WTI is down about 16% over the same period, with significant volatility in the energy markets.
“bread crude is down 13 a.5% since the start of the year. WTI is down about 16% over the same period. A lot of volatility in the energy markets.”
Doomberg offers a 100% refund policy for Substack subscribers who are unhappy with the product; they have always refunded everybody 100% of their subscription if they express disappointment.
“if anybody listening subscribes to Duneberg and it's not for you, we have a 100% refund policy. The last thing we want is unhappy subscribers on our on our roles. And um we we've always uh refunded everybody 100% of their subscription if they express disappointment with the product.”
Current oil prices at $61 are elevated; buyers at that level "don't like money" because they're paying too much relative to fundamental value.
“I don't know who's buying oil at 61, but they don't like money.”
The Doomberg Substack publishes analysis on energy markets, geopolitics, and supply chain dynamics, including a promotional offer of a 64-minute 'Hydrocarbon University Fundamentals' webinar for new subscribers covering the converging trend from coal to crude to natural gas liquids to natural gas.
“we just put out a a promotional offer for new Dummer subscribers. if they subscribe to Dumer, they'll get a 64-minute webinar called hydrocarbon university fundamentals uh that every energy investor should know. Um we go through this converging trend, the trend from coal to crude oil to natural gas liquids to natural gas.”
Doomberg offers a Doomberg Substack subscription with a 100% money-back refund policy if subscribers express dissatisfaction, and includes a 64-minute 'Hydrocarbon University Fundamentals' webinar on hydrocarbon convergence trends.
“if anybody listening subscribes to Duneberg and it's not for you, we have a 100% refund policy. The last thing we want is unhappy subscribers on our on our roles. And um we we've always uh refunded everybody 100% of their subscription if they express disappointment with the product.”