The Oil Glut Even Drones Couldn’t Fix

An attack took out more than half of Saudi’s oil production, yet WTI could barely break the top of our forecasted trading range. Production will come back, and there is ample global storage. Trump will release SPR volumes, and encourage permitting of new pipelines – at a time when already-permitted ones in the Permian will enable increased production of 1 million barrels per day by year-end. Ultimately, Saudi will have to cut production – by conventional means – to support prices. The US and Saudi would like to use military force in Iran to take out production that US sanctions couldn’t, with China still a major buyer. But China is backing Iran with a 25-year partnership including troops on the ground. That deal likely sets up a negotiating dynamic in the US-China trade talks, where China deals away the Iran partnership, committing to Texas instead in exchange for some other deal-point. An out-of-control military spiral, the only thing that could reverse the glut, is remote.