In terms of prediction: the future is going to be like the past, only more so! Oil prices, and gasoline prices tend to go up and down, with the odd spike and crash tossed in. I’m guessing that we will see more spikes and crashes but they will be short lived.

I would wager the price of an imported beer that that prediction turns out to be fairly correct but it is kind of useless when it comes to understanding what is happening in the industry.

Understanding takes work (curses!) and even worse a spreadsheet won’t capture some of the more important aspects of the market.

The first thing to realize is that oil is not ‘a free market commodity’, OPEC is a cartel after all. Middle East producers can pump oil out of the ground for $5-$8 per barrel. A few years ago the CEO of a major offshore oil producer (I can’t remember if it was BP or Shell) claimed a break even price of $15/barrel. Offshore oil is capital intensive to tap but fairly cheap to operate.

Next up is US fracking, this beast is different: wells are cheap to drill, and fast! you can easily go from drilling to first oil in less than a week! The oil is expensive costing about $30-$50 per barrel, and the wells run fairly dry in 2 years. Every time oil prices spike US frackers go nuts and drill new wells whose output they sell into the futures market at spike prices.

Assuming that $40 is the US fracking average cost, then we can expect ‘normal’ oil pricing levels to be about $50 until oil consumption falls to 40 million barrels per day. 10 million barrels to each of S. Arabia, Russia, the US, and the rest of OPEC.

Now we consider refineries which are the main consumers of oil. They take crude oil and turn it into products like gasoline, diesel, jet fuel, and products to supply the chemicals industry. Refineries can alter their product mix within limits but that generally involves making physical changes to the plant and that qualifies as a capital expenditure. At the end of the oil era people are not happy with the usual 20 year capital expense payback period and so money starts being really expensive.

Refineries will retune to minimize the amount of gasoline and diesel produced but as demand for their products falls the industry will shrink.

Finally we take a look at the system at this particular point in time.

US refinery capacity is constant over the last decade, but imports have fallen from 7,500 barrels per day to 1,660 bpd, exports of ‘petroleum product’, i.e. the output of refineries, has grown from 1,360 bpd to 4,500 bpd.

US domestic consumption of oil products is down by 2,900 bpd or about 15% over the last decade. Most of that change happening recently.

Those growing exports are masking falling demand but they are based on developing demand for 1st world used ICE vehicles.

Then I came across this item: “Introducing the MG5, which is known as the Roewe Ei5…” in an article on InsideEVS about how well that EV held up in fleet that drove the cars 100K miles in 2 years. Big change? Battery capacity down 14% after 100K miles. The rest of the of the vehicle is mechanically sound and the interior is holding up very well!

If that is typical EV quality, then the developing world will stop buying used 1st world ICE vehicles as fast as China can supply the EVs. Falling 1st world used ICE exports lead to a domestic glut and crashing prices. That in turn makes new vehicles more expensive (What trade-in value?) and crashes those sales.

ICE seems to be much closer to extinction than expected. The model I’m thinking of is a core collapse supernova, instead of burning through fuels at an accelerating rate, export markets disappear at an accelerating rate, then rebound through the originating markets blowing it into the proverbial rodent’s dropping.