The oil market has gone decidedly bearish, and sentiment is growing that Moscow isn’t going to be able to play ball much longer with OPEC cuts. The World Bank has slashed its economic growth outlook for Russia for 2019 over lower crude production after it agreed with OPEC to cut some 300,000 bpd and a major contamination problem led to a disruption at the Druzhba pipeline. Russia’s GDP growth is now set at an expected 1.2%, down from 1.5%. To make things worse, while everyone has been focused on the supply side of this equation, bearish sentiment has been boosted by the demand narrative. Consumption levels have been dropping thanks to fears of a global economic growth slowdown. Economic slowdowns in China and Germany, the never-ending Brexit debacle, and now an even more intensified trade war are all contributing to that negative picture. Saudi Arabia also said on Friday that OPEC was close to agreeing to extend production cuts past June, but they haven’t yet sealed the deal with non-OPEC countries (i.e. Russia).
Will There Be a War With Iran?
It’s a million-dollar question and one that is impossible to answer definitively. One can, however, assess the situation from various external perspectives and an even greater number of proxies involved in this brewing conflict. If this conflict does escalate, Iran warns that oil prices could go above $100 per barrel as soon as the first shot is fired in the Persian Gulf. Technically, that shot was already fired when Saudi tankers were sabotaged off the coast of the UAE. Escalation of the Iran conflict has been the main focus for speculators over the past few weeks, but they now seem more concerned with the impact of a trade war that has spiraled out of control.
Our sources in the region, including an advisor to the Saudi royal court and private industry sources close to the biggest funds in the Kingdom, claim that an all-out war with Iran is not imminent at this point. Their perspective is based on the fact that both the Saudis and the UAE are very concerned about provoking a real war. What they are doing right now, in all their lobbying in Washington, is attempting to make a lot of noise, but they are being careful not to push things over the edge. The key players on the Gulf side are MBZ and MBS - and while the former is simply trying to rattle some cages and send an egotistical message to Iran concerning the extent of the UAE’s power, MBS is a major wild card, and sources are nervous that he, like Trump, could take things beyond the point of no return. That said, all sources say the chances for war with Iran are low. What few realize is that the Saudis and the UAE have back channels to talk to Iran privately; channels that go through Kuwait, Oman and even Dubai.
In the meantime, however, there will be plenty of continued warmongering. The latest statements from Saudi Arabia and the UAE - with added credibility from Norway - are blaming the tanker sabotage on a “state actor”, implying that it wasn’t simply Yemen’s Iranian-backed Houthi proxies.
EV Growth Is Real: Follow the Production Plans
IHS Markit’s latest predictions for the EV market show US EV sales surging from 200,000 in 2018 to 1.28 million units in 2026, which represents a massive 540% increase in only five years. In 2018, new EV sales accounted for 1.16% of all new vehicle sales. In 2026, they will account for 7.6%.
Soaring demand this week led Toyota to shave five years off its EV plans and ensure that half of its global sales come from EVs by 2025. And to do that, it’s going to hit up Chinese battery makers because there is a significant chance that it wouldn’t be able to meet battery demand alone.
Last year, there were 14 companies offering at least one EV brand. By 2025/26, there will be 43 companies offering at least one EV brand, according to IHS predictions.
But the real story here isn’t just who’s producing what and when - it’s about the industry’s tipping point being only three years away based on predictive data from Deloitte, which says that by 2022 EVs are likely to meet cost parity with gasoline or diesel vehicles, even if they aren’t subsidized. That doesn’t mean that EVs will sell for the same price as conventional vehicles. Cost parity, in this case, means total cost of ownership, which includes sticker price plus the cost of keeping them and running them. It will take a bit longer for sticker prices alone to catch up with conventional vehicles.