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  • Writer's pictureOil Patch Press

Two Cents From the Neighbor Next Door: Iran’s 53-billion-barrel Oil Find

After a hiatus, the Oil Patch Press blog has returned, and has a lot of catching-up to do.

On November 10, Iran announced they had found a new 53-billion-barrel oil field, snubbing their nose at America in the process. Keep in mind that these are the same blokes who swore they were abiding by the terms of the 2015 nuclear deal they made with not only America, but many other nations as well. Not to get side-tracked, but why are we so quick to believe anything they have to say? That aside, there appears to be a bigger issue at hand here.

This announcement by Iran should be taken in context with ancillary information gathered around the same time, data pointing towards overall economic health globally. Most notably, Iran’s announcement should be filtered through the unfolding economic scene enveloping China, particularly the ongoing trade negotiations between America and China. Attempting to follow the China-U.S. trade negotiations is akin to keeping an eye on the bouncing ball—as invisible bouncing ball, in this case. The NYSE is keeping track of the trade negotiation gyrations quite well, if you ask investors. But what investors know is all second- and third-hand. So what is the ordinary U.S. mineral rights owner and oil industry professional to do? Hang in there—the only thing any of us can do. But we also can pay close attention to ongoing events, to at least ascertain a slight heads-up when it comes to this complicated mess.

As previously suggested, there could be a correlation between Iran’s sudden over-the-top announcement on November 10, 2019 and the ongoing U.S.-China trade negotiations. This is how the Next Door Neighbor sees it: loss of momentum in the growth of any major nation’s economy has direct impact on the amount of fuel (energy) consumed by that slowing economy. China certainly is no exception. The U.S. tariffs on China have had devastating impact on China’s year-over-year GDP growth. Experts have been singing this song for almost a year now, and hard data collected routinely is bearing it out, according to any number of experts have stated in practically all forms of media.

The U.S. either can’t prove it, or refuses to admit, that Iran continued to sell a significant amount of its contraband oil to China despite the heaviest sanctions ever imposed on any nation in modern history. But now that China’s economy is slowing, and their consumption of oil is fading, just how does Iran expect to benefit from this supposed huge oil find? Or is it merely the possibility of such a find that Iran is hoping will accomplish their goal? And what is that goal, exactly? Their goal is found in the incessant chant of death to America. But how would worldwide belief of such an oil find bring Iran closer to its chanted goal? Let’s take a look at a few of the dots, to see if they connect.

America is now a net exporter of oil. Natural gas should join that export club in the near future, as soon as our LNG compression infrastructure and transportation logistics are more fully developed. Being a net exporter means we can expect income from selling oil to other nations around the globe. Iran has positioned itself to compete—or at least attempt to compete—with America in that arena, sanctions or no sanctions. But the global oil market is shrinking. America’s economy is booming, no doubt, but China’s and the EU’s economies are shrinking. And those are the two economies directly trailing America’s in size.

The shrinking economies of China and the EU have a domino effect. China and the EU threaten to affect other, lesser economies as well. We’re not seeing that unfold very quickly right now because India and other Asian countries have been bolstered by the spreading of U.S. manufacturing facilities to them, facilities pulled out of China.

Meanwhile, back on The Ranch, oil consumption worldwide is slowing overall and U.S. domestic oil companies and royalty owners are seeing their monthly income shrinking. Is it just a hiccup, or will it continue to spiral downward? That is the $64,000 question, no doubt. But for the moment, drilling permit applications are off, and that's a leading indicator of future domestic oil industry activity.

There is hope on the horizon, however. There's one specific monkey wrench when tossed into the gears could end the downward spiral worldwide almost overnight. What is that monkey wrench? The USMCA trade agreement that replaces NAFTA. If the U.S. House of Representatives would get off their duff and pass it into law, it promises to be an energizing shot in the proverbial global economic arm that could surpass the economic surge unleashed when Trump was elected in November, 2016.

All of us who work in the U.S. oil industry, or receive monthly royalty checks from any company in the U.S. oil industry, need to contact our U.S. Representative and demand that the USMCA be brought to the floor of the House for a vote—immediately. Let’s get that ground-zero piece of the global economic puzzle dropped into place so we can move forward with continued worldwide economic growth.

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