More Bad News for Lithium
Falling Oil Prices are Here and That’s More Bad News for Lithium
The price of Brent Crude, Europe’s benchmark oil price, closed at $72.70 on September 4th, 2024. It’s close to its lowest price since 2021. You can see it in the chart below:
Rumblings out of the Middle East and Asia point towards potentially even lower prices. Weaker demand from China, the world’s largest oil importer, drove most of the recent price decline. According to Bloomberg, the country’s stockpiles of key commodities show that the economy is slowing down.
Even as demand slows, the Organization of Petroleum Exporting Countries and its allies (OPEC+) plan to increase production. According to industry analysts Wood Mackenzie, voluntary cuts of 2.2 million barrels per day, announced in November 2023, will phase out between October 2024 and September 2025.
That’s a lot of oil, particularly in a market with weak demand. There is speculation that this is another attempt to kill U.S. shale producers. That would be a repeat of the 2014-2015 strategy, led by Saudi Arabia. OPEC’s nearly unlimited oil production sent Brent crude prices down from $110 per barrel to under $30 per barrel, as you can see here:
It devastated shale producers. According to a Forbes article from May 2016, sixty-nine oil and gas producers went bankrupt from 2014 to 2016. It wiped out nearly $1 trillion in equity value and led to much higher oil prices.
But if OPEC+ succeeds in driving oil prices down that low again, it will have an impact on electric vehicle (EV) demand. Today, high gasoline prices and low gas mileage options are one of the main reasons people buy EVs.
An extended period of low gas prices will have a short-term impact on EV demand. And it could lead to bankruptcies in that space as well. Reduced EV sales and potential bankruptcies are bad for lithium demand…and prices.
If you are sitting on big gains in lithium or oil producers, it may be time to take some money off the table.
For the Good,
The Mangrove Investor Team
Numbers You Need to Know
20 Million
21 Million
32
Crude oil is produced in 32 U.S. states and in U.S. coastal waters. In 2022, five states combined accounted for about 72% of total U.S. crude oil production. (U.S. Energy Information Administration)
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What Is OPEC?
It’s been around for 60 years. It’s one of the world’s most influential nongovernmental institutions. And it affects billions of people, in one way or another. But much about OPEC — the Organization of the Petroleum Exporting Countries — is (forgive the pun) opaque
