Oil & The Next Recession

Published on
January 10th, 2020
Duration
38 minutes


Oil & The Next Recession

The Expert View ·
Featuring Mark Gordon

Published on: January 10th, 2020 • Duration: 38 minutes

Will the underlying dynamics of the oil market be the next black swan? Mark Gordon, CIO of the Ascent Oil Fund, joins Real Vision to unpack his data-driven view on why the rising tide of scarcity in oil markets could be the trigger for the next global recession. Gordon's thesis touches on the shale markets, the risks posed by electric vehicles, his outlook for production and exploration stocks, and the recent unrest in Iran and the Middle East. Filmed on January 3, 2020 in New York.

Comments

Transcript

  • AB
    Adam B.
    5 February 2020 @ 09:50
    Almost a month since the date of the interview, crude prices are down 20%.
    • RM
      Robert M.
      2 March 2020 @ 02:10
      And now a month later, prices are down even more. But this video is now very relevant as oil has gotten to historic lows. If you are a long term investor, could be a good entry point.
    • JW
      J W.
      7 March 2020 @ 09:48
      He did say that his scenario would play out about 6 months from Feb, but at that time we did not have the virus scare, or at least not the realization that this virus is a game changer economically speaking. Would be interesting to ask him to comment on his thesis here in the comment section and update his views...RV team, over to you :-)
  • OC
    Otto C.
    20 January 2020 @ 19:33
    Great presentation!!! However, I disagree with his argument that EV is a temporary trend. EV's are here to stay and the hurdles that he mentions are normal of any new technology and they will be resolved. His argument that SUV's sales have increased is a cyclical trend which repeats around business cycle peaks.
    • OC
      Otto C.
      20 January 2020 @ 19:36
      It would be great to hear his view on the supply issue as it relates to the relatively new oil reserves found is Brazil and Argentina
    • OC
      Otto C.
      20 January 2020 @ 19:44
      Goldman Sachs forecast about "peak oil" in 2021 seems far fetch. Besides, GS' credibility is lacking due to its conflict of interests on this and many other investments. How many "peak oil" stories have we heard over the years? Anyone betting of peak oil could have done better on other investments. Lastly, by analyzing the charts, it's clear that oil's long term trend is down.
    • PT
      Peter T.
      6 February 2020 @ 07:54
      https://www.youtube.com/watch?v=Y9jscWk2DMg one problem to another
  • MH
    Michael H.
    13 January 2020 @ 22:32
    Decent content but horrible presenter. Painful to listen. Missing "What can go wrong with my thesis?" Never heard of anyone applying "Morse's Law" on EV.
    • RS
      Rob S.
      15 January 2020 @ 14:11
      Just a humble fellow maybe not used to being on camera. Very genuine.
    • DP
      D P.
      20 January 2020 @ 16:55
      He seems to be an analyst by nature, not a salesman. I prefer to listen to an analyst and not a salesman.
  • JC
    John C.
    15 January 2020 @ 07:39
    This was a useful summary and good video. Sure hope the Tesla EV crowd doesn't get on this comment section though! @Trenton T. your comment "ESG is going to wreck the global economy as he predicts if energy CAPEX continues to be stifled by zealotry rather than pragmatism." is one other thing I think will ultimately be bullish for oil. As Norway, Blackrock etc. all start pushing this ESG stuff there will be much less money to invest in oil projects going forward and I think it will further intensify the lack of supply at some point.
  • TR
    Travis R.
    10 January 2020 @ 15:51
    Prominent EV enthusiasts refer to Wrights Law as opposed to Moores. Wrights Law theorizes that as production capacity increases, unit cost decreases. Recently evidenced in Teslas ramp with Gigafactory 3 in Shanghai; using lessons learned from the tumultuous Model 3 production ramp. Ark Invest has been outspoken and proven correct here.
    • JC
      John C.
      15 January 2020 @ 07:36
      Ark Invest just said they think Tesla goes to $6000 while they simultaneously sold 30,000 shares after it breached $500. And they have been long and strong the whole time even when the stock went well below $200 for awhile. So people got burned, now longs making money due to a massive short squeeze. They are pie in the sky promoters of certain stocks. Does not validate EV, which as the presented said is hitting the wall soon as all these government subsidies start to expire (in China and elsewhere including the US. I think in Norway the top car sold in Dec was the Tesla as subsidies expired in 2020 correct me if I'm wrong). So demand pushed forward for very expensive cars. Don't get me wrong I like driving EV cars despite the downsides. But it's all based on cheap, affordable electricity which none of the 'green' policies in the west are providing - rather these idiot politicians are pushing wind & solar and removing nuclear from the mix and then they end up importing coal and getting some of the most expensive electricity prices on the planet.
  • SP
    Steve P.
    10 January 2020 @ 20:16
    This is so scary. What happens when no one could afford to drive to work? How will we eat?
    • mw
      michael w.
      13 January 2020 @ 21:55
      More credit cards. Debt expansion is the goal.
  • JB
    John B.
    10 January 2020 @ 19:28
    Unfortunately Mark Gordon is simply wrong about shale oil. If it WAS true that there isn't any more shale oil to be produced from existing wells then Mr. Gordon might be correct. The problem is he hasn't updated his models to reflect the next wave of shale technology. He's wrong on some very basic facts here. RV should bring on Lewis Matthews of CrownQuest to debunk this entire interview based on the realities of the technology in the shale patch. https://www.linkedin.com/pulse/2nd-shale-revolution-lewis-matthews/ The EASY to get shale oil has been pulled from the ground. But there simply isn't "zero additional oil" or however he phrased it. I'm a grad student at a prominent Texas university that has a deep relationship with companies in the shale patch. Many people simply are not aware that a second wave of technology based on the data from the last decade of production, combined with new techniques, is going to lead to a massive INCREASE in the amount of shale oil that can be recovered. Currently the recovery factor of shale oil production is 5-12% and as of this spring the average was on the high end of that range. The new techniques that are being implemented on existing wells is already, in the first stage of the rollout, increasing production at current existing wells by 50%. Recovery rates of 20% are not uncommon. Laboratory testing and modeling shows that the upward limit of shale production recovery rate is somewhere around 60%. Not the 10% level that the technology Mr. Gordon is referring to. Secondly. Shale oil isn't "bad oil" as he referred to it. Shale oil is some of the highest quality oil in the world. It has very little contamination because it hasn't absorbed contaminates like conventional oil. It must be cracked out of the microscopic holes in the rock that have it trapped but what comes out looks more like nail polish than black crude oil. There is a reason that the refineries in Houston are being retooled to process this oil, its much cheaper and more plentiful and has higher production yield than lower quality heavy crude. Peter Zeihan has a ton of lectures on this.
    • TR
      Travis R.
      10 January 2020 @ 19:42
      Great info. Thanks
    • SC
      Sam C.
      10 January 2020 @ 21:50
      thanks for pointing out Peter Zeihan. He still says that if oil prices rise the US needs not to worry it can supply itself. and there seems to be a law that prohibits oil exports. Which means that if that would be triggered oil-dependent nations will be paying a high price.
    • RM
      Robert M.
      11 January 2020 @ 02:29
      Thanks for sharing. But in looking at Mr. Matthews work experience, he has spent most of his career in the Navy and working in the stock market. And while he got a masters degree from Texas Tech in Geophysics in 2016, he only has 3 years of full time job experience in this space with CrownQuest doing technical project research, machine learning applications and blockchain applications. And in an article that he is quoted in the press, he states that data is missing to make this second revolution happen since drillers don't share info between themselves. So hard to tell that he is qualified to debunk arguments in this space or make accurate predictions about a second revolution with such a short time spent in the oil and gas drilling business.
    • DP
      David P.
      12 January 2020 @ 11:52
      It all depends on price. We know there is massive amount of oil left behind in the shales. If price goes up high enough we will find a way to get it out, just like shale 1.0.
    • AR
      Anthony R.
      13 January 2020 @ 02:25
      Is the 'Shale 2.0' innovation that you are referring to the use of CO2 sequestration? Another RV guest spoke of that a few weeks ago......
    • JB
      John B.
      13 January 2020 @ 18:35
      Just wanted to answer Chris. The article I linked to was written in Feb 2018. The presentation I saw in October was given to us as part of an information science class where the university brought in guest speakers who were on a quasi recruiting trip for graduate students. If I remember Lewis correctly, he said that the information that we were being given was part of the new presentation being given to investors in Q3. Basically its about as new of information as it could get at the time. We were shown a live demonstration of the blockchain based information transfer system that is now up and running. CQ and other drillers are now using that information (and have been for almost a year) to swap data on individual wellheads. Currently the norm is a 1 wellhead for 1 wellhead straight swap on recovery data between companies. Good questions though. I forgot that the article was written before they actually completed building the system.
  • RS
    Ruben S.
    13 January 2020 @ 14:56
    what about all the opec production cuts? dont we have enough global spare capacity to buy time and invest to increase production?
  • ST
    Scot T.
    11 January 2020 @ 02:43
    Lots of moving parts in this thesis... too many for my liking.
    • AR
      Anthony R.
      13 January 2020 @ 02:19
      3 is too much?
    • PS
      Peter S.
      13 January 2020 @ 14:13
      Agree to some degree , but still it feels like the price has more upside potential than downside risk? If we get a slow down globally, before these stars align, the end of the rainbow might dissappear - but still great analysis and helicopter view of the current situation
  • AN
    An N.
    12 January 2020 @ 18:47
    What about google and amazon both fighting to use their ai technology now working with oil companies to bring down the cost of discovery of finding new sites
    • PS
      Peter S.
      13 January 2020 @ 14:09
      Even if they are successful, it takes 5-7 yrs to get permits, build infrastructure and secure financing (and when I been with the Norwegian oil companies, they have spent billions on trying to lower capex - so I am guessing that we are not talking about a dramatic decrease of costs?)
  • SS
    Sam S.
    13 January 2020 @ 14:09
    Anybody talking Venezuela or deep water drilling? Both are supposed to have enormous amounts of oil and gas, but as Mr. Gordon indicated, political pressures have marginalized most of it. Sounds like it may soon matter in a big way. Lot of great info! Thanks Mr. Gordon & RV TV.
  • JB
    Jon B.
    13 January 2020 @ 10:52
    It could be me but I didn't get the follow through on the argument. in the beginning, mark suggested price inelelasticity of oiland said spare inventory didn't drive price (1:50) but (33:50) he suggested that no spare inventory does - or at least the geopolitical perspective of it does.
  • RK
    Roger K.
    11 January 2020 @ 11:08
    @Milton; Can you please leave the charts for a while on screen while the guests keep talking. _ That's would be an improvement to your video production ability let along we would get to see the better videos on RV. Thank You.
    • DP
      David P.
      12 January 2020 @ 11:41
      And title y axis
    • M.
      Milton .. | Founder
      13 January 2020 @ 07:52
      Hey Roger, You can study the charts in the transcript of this video: https://www.realvision.com/rv/media/Video/e0a9e620d85142b5affb7ceffaf3c9c2/transcript
  • SO
    Shads O.
    12 January 2020 @ 09:09
    Great sharing! Cheers!
  • LP
    Lauri P.
    12 January 2020 @ 09:06
    The whole thesis requires global trade to miraculously pick up this year and push the demand higher, which is something I wouldn't be betting on given the anaemic global & especially Chinese economy. The trade war hasn't been the main driver of the slowdown, so the truce won't save us there.
  • AC
    Andrew C.
    11 January 2020 @ 03:37
    Art Berman on MacroVoices podcast (last month) argues directly against Mark’s points. Both say shale will disappoint and I concur. But I am still trying to figure out whether I believe Art or Mark more on future production and price. What do you guys think ? RealVision should have put them on together! Thanks to John B. below, down I go into that rabbit hole!
    • LV
      Lewis V.
      11 January 2020 @ 18:50
      Art actually says he agrees with Mark in the back half of year and beyond, but he was bearish in short to mid term based on his models.
    • AC
      Andrew C.
      12 January 2020 @ 03:48
      Thanks. Didn't they also disagree on the IEA/EIA reports on missing barrels? My understanding was Art sees the missing barrels as speculator storage, Mark (and G & R) as demand these agencies are continually under-estimating
  • SW
    Scott W.
    11 January 2020 @ 15:56
    Great presentation! Lot's to think about. Might there be implications for a nuclear renaissance IF looming shortages spike oil prices AND there continues to be "climate change" induced regulatory pressures. I don't see any signs of the latter abating; an increasing number of people seem convinced that humanity must reduce CO2 emissions sooner rather than later to avoid catastrophe. And/or do we potentially see increased investment in NG/LNG infrastructure as a climate compromise, assuming renewables continue to under-deliver.
  • GC
    George C.
    11 January 2020 @ 12:05
    Good reminder not to take our eyes off the energy market. If Mr. Gordon proves right, certain EM markets will be in deep trouble.
  • CC
    Cornelius C.
    11 January 2020 @ 09:21
    Would have been a much better video if he went through events that could falsify his thesis. What if trade slows as well?
  • DH
    Daniel H.
    11 January 2020 @ 05:35
    Great, thought provoking presentation.
  • DP
    David P.
    11 January 2020 @ 01:19
    Great interview. I agree with his general thesis but wonder on the timing. Seems hard to imagine a new price regime emerging this quickly from current levels. Especially given how benign price action was this week with Middle East escalation. We'll see. Thanks for your time Mark
  • db
    don b.
    11 January 2020 @ 00:21
    King Hubbert's forecast was much more intricate (math & physics driven) than Mark Gordon presented.
  • DS
    David S.
    10 January 2020 @ 20:06
    EVs are not oil independent. Unless the EV is hooked up to a solar panel, it is probably getting its electricity from utilities many of which use oil and coal to generate electricity. It takes oil to build the plant and make the electric panels. It would be interesting to know a little more about China's pullback from subsidies - lack of funding or lack of electricity produced by their massive solar projects. China needs EVs to help alleviate its air pollution, but are they just burning a lot more coal and oil in the utilities and less on the street. By eliminating subsidies, they may be trying to bring the EV equation into a better balance. Not paying out the subsidy is also helpful to the treasury. DLS
  • WM
    William M.
    10 January 2020 @ 19:00
    Mark makes a really great case for higher oil prices....which almost nobody expects. Excellent video.
  • LJ
    Liam J.
    10 January 2020 @ 17:48
    I thought the oversupply we had was huge and that the cartel of today (opec) was holding back alot of oil rather than the opposite. I guess i was misinformed ?
  • JK
    Josh K.
    10 January 2020 @ 16:44
    Typed a long reply and it had “error and lost it” lol. Short: I think your discounting declining demand as EVs are not desirable. When the reality has been there have been limited desirable EVs, most of which were haven’t been refreshed in 4+ years. Additionally, high oil would increase the value proposition and push people toward transitions faster. Very aged fleet, discounts in form of rare cuts, unit production discounts(wrights law), etc. great video thanks!
  • CD
    Colin D.
    10 January 2020 @ 15:03
    An excellent assessment of prospects for the oil market which gives proper recognition to the hype about EV growth. EV will grow over time but slower than many expect.
  • JC
    Jason C.
    10 January 2020 @ 09:04
    Nassim Taleb told me never to assume a bell curve.
    • HK
      H K.
      10 January 2020 @ 12:05
      he's referring to the shape of the production from a discovery over time, not the probability distribution
    • TT
      Trenton T.
      10 January 2020 @ 14:24
      The shape of the production curve from an oil well is an asymptote. An additional problem is that EUR for shale has been calculated based on formulae for conventional decline rates (enforced by the SEC no less) that is not analogous the actual decline rates experienced in shale wells. Further, these formulas are used by investment banks and investors to perform valuations to transact. More short-term pain to come for the shale crowd. I agree completely with his long-term projections, however. ESG is going to wreck the global economy as he predicts if energy CAPEX continues to be stifled by zealotry rather than pragmatism.
  • MI
    Madhu I.
    10 January 2020 @ 12:56
    What does he mean by emp stocks?
    • CO
      Craig O.
      10 January 2020 @ 13:04
      Exploration & Production