Some of my friends ask me to prognosticate on certain topics, and economics is among the favorites — and they even sometimes ask HOW I make predictions.

Today is a great example of some data I have just received from a super article by Mike Stone at Reuters that is a key to understanding long-term trends versus short-term blips. Ignore the announcements that blare out of the TV and newspapers everyday, because they don’t really have meaning other than manipulating you. Look at the big picture.

The question is, will Oil Prices, a huge staple of the world’s economy, and it’s finance system — rise or fall, in general, over the next decade?

Good question.

I believe oil will trade in a broad range from $30 to $75 a barrel for most of that decade and will trade in a more narrow band — from $45 to $65 for 50% of that time.

I say this because the major producers of oil in the world, OPEC, the United States and Russia — are all expected to raise production during that time period, into a demand curve that cannot challenge the production capacity increases.

This is true because the OPEC nations currently have idle capacity, and in fact are enforcing production quota’s which represent cuts for them, and some countries like Iran (sanctions hurt the infrastructure) and Venezuela (socialism hurt the infrastructure) have a lot of idle capacity. On top of all that — both Russia and the US are increasing production capacity basically as fast as possible.

What about demand?

Here we need to catch up with Mike Stone’s wonderful story today from Reuters:

Mike Stone / Reuters The US will supply much of the world’s additional oil for the next few years, according to a new report from the International Energy Agency (IEA).

This is a huge lede.

That US alone, can do this amazing and stabilizing feat is truly a testament to how fracking technology has changed the world.

This means Trump need only keep his policies in place here, for this dramatic world-changing result to naturally occur.

This is a very important development and 5 years ago was not even a remote forecast. Sometimes changes which are obvious, like Senator Heidi Heitkamp’s sponsored legislation to remove the restriction on US energy sales outside the US — don’t happen for years — even though they are obvious.

This time, nothing has to change, Trump doesn’t even need a tweek, beyond the ones he has already done, and is philsophically committed too — he can just leave this beast alone and it will roar.

Stone again — Over the next three years, the US will cover 80 percent of the world’s demand growth, the IEA says in its newly-released Oil 2018 annual report. Canada, Brazil and Norway will cover the remainder, leaving no room for more OPEC supply.

Think this through, if a.) Russia does not expand output ( a problem for them, they need more energy FOREX badly) and b.) OPEC doesn’t either (also a problem for them, they also depend on FOREX to balance their domestic budgets) and the c.) Iranians don’t (if they can’t generate additional FOREX, this probably means regime change in Tehran) and the c.) Venezuelans NEVER get it together (probable), the demand curve STILL doesn’t push on the production curve. One of more of these players will certainly increase production over this period, it’s almost a requirement.

Stone continues — The irony is that the substantial gains in output from shale will only be possible because of the OPEC cuts, which has tightened the market and boosted prices. This fact is not lost on OPEC producers. “If you are a shale oil producer, who brought you back? It was OPEC,” the UAE’s oil minister Suhail Al Mazrouei, said at a recent industry conference, according to Bloomberg. “Without OPEC there’d be chaos in the market.”

Most people thought Saudi Arabia had something else up their sleeve a few years ago when they opened up production to capture market share and blamed the coming shale revolution in the US for the move, now, it looks like that was exactly why they did it, they saw this coming and tried to choke it off the only way they knew how — lower prices to strangle shale investment in the US fields.

They did miscalculate the ROI situation here however. They thought the US shale industry needed prices in the high 60’s to stay viable. That part isn’t true, the Scoop and the Stack combined with parts of the Permian and all viable into the 30’s.

Back to Stone — Indeed, the IEA’s new report paints a pretty gloomy picture for OPEC members, who are hoping to phase out their supply cuts after this year. With non-OPEC supply rising quickly, particularly in the US, OPEC may struggle to figure out a way to increase output without pushing down prices, according to the IEA’s analysis. That could put pressure on the cartel to keep the production cuts in place for longer than they had wanted, although it seems hard to imagine they maintain the production ceilings for another three or four years. Doing so would mean handicapping themselves and ceding even more market share to US shale and other non-OPEC producers. Still, it is unclear how this plays out – returning to full production, even if phased in gradually, presents its own problems, if the IEA’s forecast is accurate.

Is the IEA’s DEMAND forecast accurate?

No, I think their demand predictions are low, but EVEN if they are much higher than the IEA thinks they will be, there is no way this ever turns into a shortage. Every single increase in price, will entice new levels of production from disparate sources, essentially guaranteeing adequate supply, if not making glut conditions much more common than shortage conditions for at least a decade.

This next paragraph will really make Trump smile.

Stone again — The IEA sees demand for OPEC oil actually declining in absolute terms over the next few years as it is edged out of the market by non-OPEC supply. OPEC production only grows by 750,000 bpd through 2023 under the energy agency’s forecast, although that also takes into account a 700,000-bpd decline in Venezuela. The bottom line is that the IEA sees oil demand rising by 6.9 million barrels per day (mb/d) by 2023, with more than half of those increases coming from China and India. Meanwhile, supply grows by about 6.4 mb/d, with a whopping 3.7 mb/d coming from the US, nearly 60 percent of the total global supply increase.