Tag: finance

Over the past two years there has been growing investor unease (if not when the Fed is actively involved in propping up risk assets) and much speculation that the massive increase in corporate US debt over the past decade, and specifically the record accumulation in the lowest investment grade-rated, BBB debt, would eventually hit a tipping point, sparking a credit crisis.

Shown visually, the problem roughly reduces to the following: corporate debt has doubled from $5 trillion in 2007 to $9.5 trillion halfway through 2019 with corporate debt-to-GDP now back to levels which traditionally presage a recession.

Amid this massive debt increase, the principal risk is that the biggest growth was that in BBB-rated debt (which now amounts to over $3.2 trillion), is just one downgrade away from junk, and is also why many skeptics have been warning of a barrage of “fallen angels” before or during the next recession. 

The biggest culprit for this surge: trillions in debt was sold in the past few years by BBB-rated “investment grade” companies who used the proceeds to buyback their stock…

… a concern that is only compounded by the fact that rating agencies appear to be well behind the curve, or as Morgan Stanley (and Jeff Gundlach) have shown, despite its BBB rating, 55% of BBB corps should have a junk rating already based on leverage alone.

Finally, as overall corporate leverage hit record levels, for the low end of the IG rating spectrum one of the side effects of the slowdown in earnings growth has been a delay to the deleveraging plans for most issuers, despite continued commentary emphasizing a focus on gross debt pay down. In fact, according to Goldman, for 48 of the largest non-financial BBB firms – a group which captures over $900 billion of index-eligible debt across the TMT, Healthcare, Food & Beverage and Industrial sectors – the average net debt to EBITDA ratio in the most recent 12-month period (2019) is actually 0.53x higher relative to year-end 2017.

We discussed many of these dynamics, and especially the risk that much of the BBB-rated universe is far weaker than its ratings would suggest, one month ago in “Meanwhile For Bonds, It’s Going From BBBad To Worse.” Now, picking up on the topic of overestimated BBB-strength, is Bank of America which writes, that there are currently 26 US BBB-rated non-(Financial, Utilities and Energy) issuers (out of 198 so 13.1%) with high gross leverage (>4x), which is traditionally associated with junk bonds.

And since investor perception is that this number is much higher than in the past, and in fact some are unable to recall more than just a few examples from before 2015, one of the most frequent questions Bank of America gets is whether rating agencies are being more lenient these days – for example by giving companies credit for deleveraging plans they never fulfill? And since > 4x leverage is more apropos to high yield companies (as shown in the blue chart above) “the fear is that rating agencies getting their act together eventually leads to many downgrades to HY”, according to BofA’s Hans Mikkelsen.

First, some facts on GAAP vs. adjusted EBITDA

As BofA adamits, its statistic of 13.1% highly leveraged BBB companies is based on leverage defined as Debt/LTM adjusted EBITDA. However, is using GAAP EBITDA instead there are many more highly leveraged BBBs, or about a quarter of all (specifically 23.7%), as for example one-time charges can skew the numbers during the year they pass through LTM calculations.

Since historically BofA only has GAAP numbers available, any comparison to current levels should be based on the adjustment-free 23.7% number. Here, if one eliminates issuers with negative EBITDA, which in IG is mostly due to one-offs, leaves 20.2% companies with >4x leverage. Which in the context of nearly $3 trillion in BBB-rated bonds is a dangerously high number if indeed up to a quarter of this is investment grade only thanks to non-GAAP EBITDA adjustments.

In any case, even assuming the more optimistic 20% number is appropriate to describe the number of 4x+ levered companies, this matches the level seen more than twenty years ago in 1Q 1998, and is why BofA says it’s time to “Party Like It’s 1998.”

So first the good news (at least according to BofA): in terms of the cycle back then “this was exactly three years before the early-2000s recession, which timing-wise appears to us similar to where we are today.” Let’s also recall that that particular “expansion” culminated with the Fed’s legitimate asset bubble, that of tech stocks, which we are of course seeing again with the FANGs. The outcome also wiped out roughly 80% of the Nasdaq and forced the Fed to reflate the housing bubble to offset the collapse in wealth effect as a result of the bursting of the dot com bubble.

Now the not so good news: just as the 2000 bubble ended with a massive repricing of the IG space, with the number of BBB-rated companies carrying a 4x+ leverage plunged from 30% to 5% in just a few years, such a furious deleveraging by “quality” companies in the near future would lead to catastrophic consequences for risk assets. It also confirms that rating agencies are once again behind the curve, just as they were back in 1998.

Here, for all those who blame the raters for being behind the curve, BofA has a contrarian point:

Using nearly seventy years of historical data from the Federal Reserve for all US companies we see clearly how companies increase indebtedness in expansions. This activity then slows during and in the aftermath of recessions, and the last three cycles we even saw some outright deleveraging (Figure 6). Clearly since the mid-2000s expansion was relatively short, US companies only had time to increase debt levels by 32% of pre-recession levels much less than the 83% achieved in the 1990s expansion (vs. 64% so far this expansion). With strong EBITDA growth during the mid-2000s as well there simply were not enough companies around with leverage >4x so that rating agencies could rate many BBB. This is the main reason for the low share of highly leveraged BBBs in the mid-2000s – rather than the agencies being stricter back then.

Pouring some cold water on this optimistic spin, however, is the observation that while the share of BBB issuers with high leverage is 20.2%, their share of the total gross debt is even higher at 25.8% currently (calculated in a similar way, specifically based on GAAP numbers and excluding issuers with negative LTM EBITAs). Incidentally, the share of debt was also higher back in 1998, and the current reading matches the level in 1998 (Figure 7), similar to the chart based on the share of issuer.

In short: in a best case scenario, US corporations have about 3 years before history rhymes again, and the massive corporate debt burden becomes untenable in a time of declining corporate profits, leading to the long-awaited BBBoom. The worst case scenario: the real level of EBITDA, excluding adjustments, is far lower than our worst case assumptions (which as we have shown previously can amplify the non-GAAP number by up to 200%) and even a modest change in economic conditions would result in a violent shortfall in interest coverage, a self-fulfilling prophecy where BBB-rated companies are suddenly aggressively downgraded (contrary to what had happened in the past decade), and a cascade of defaults follow unleashing the next financial crisis in the process.

Authored by Michael Snyder via TheMostImportantNews.com,

A lot of people seem to have forgotten that we were literally on the brink of war with Iran earlier this year. Back in June, President Trump cancelled a major U.S. bombing mission against Iran at the last minute, and things seemed to settle down quite a bit since that time. But now tensions are rising once again. On Sunday, U.S. airstrikes targeted Iranian-backed militias in Iraq and Syria that U.S. officials believe have been behind recent rocket attacks against U.S. forces. Of course those Iranian-backed forces never would have launched such attacks in the first place if they did not have permission from Tehran itself.

The Iranians love to hide behind proxies, and for now the U.S. is only conducting airstrikes against those proxies. But at some point President Trump’s patience is likely to run out, and at that point we could start hitting Iran itself. Over the past six months, the U.S. has sent 14,000 more troops to the Middle East, and it is being reported that “the Pentagon is considering deploying additional forces to the region”. The drumbeats of war are starting to get louder again, and many believe that eventually one side is likely to push the other side a bit too far.

The attacks that we just witnessed were supposed to send a very strong message to Tehran. According to the Daily Mail, five separate targets were hit, and at least 19 people were killed…

US air strikes left 19 people dead in Iraq and Syria on Sunday in retaliation against an Iranian-backed militia group blamed for a rocket attack two days earlier that killed an American contractor.

F-15 Strike Eagles hit five targets associated with Kataib Hezbollah, the Iranian-sponsored Shiite militia group, said Defense Secretary Mark Esper.

These airstrikes were launched to directly retaliate for the casualties that U.S. forces suffered from a rocket attack on one of their bases in Iraq on Friday…

Officials with the U.S.-led mission to defeat ISIS said Friday that a U.S. civilian contractor was killed and several American troops were wounded in a rocket attack targeting an Iraqi base in Kirkuk.

The attack, which occurred Friday around 7:20 p.m. local time in Iraq, also wounded several Iraqi personnel, officials with Operation Inherent Resolve told Military Times in an emailed statement.

But of course that attack was just the latest in a series of rocket attacks that have targeted U.S. forces lately…

U.S. officials believe Iranian-backed militias are behind a recent spate of rocket attacks that have targeted U.S. bases and interests in Iraq over the last couple months.

A U.S. official told Military Times that Iran-backed militias are now using more lethal and longer range 122 mm rockets in their attacks.

Friday’s attack on Kirkuk is at least the eleventh rocket attack targeting an outpost housing American forces in the last two months.

I am certainly not a fan of military conflict, but if I am sitting in the White House and someone keeps lobbing rockets at my troops I wouldn’t wait two months to hit them back.

So why did President Trump wait so long?

As I noted earlier, these Iranian-backed militias wouldn’t be doing anything without approval from Tehran. If Trump really wants these rocket attacks to stop, Iranian leaders need to be sent a message that will be clear and unmistakable.

And it appears that U.S. officials may be starting to lean in that direction. In fact, Secretary of Defense Mark Esper told the press on Sunday that more military action “could be warranted”…

Pompeo, Defense Secretary Mark Esper and General Mark Milley, chairman of the U.S. Joint Chiefs of Staff, appeared briefly in a club ballroom to comment on the airstrikes.

Esper termed the offensive “successful,” but said that Trump was informed that a further military response could be warranted.

Personally, I don’t know what the Iranians are thinking.

Perhaps they believe that if they use their proxies to make things uncomfortable enough for U.S. forces that Trump will eventually pull them out of the region.

But if that is what they are really thinking, they have badly miscalculated.

Meanwhile, Iran continues to get cozy with Russia and China. In fact, the three nations are currently conducting “their first-ever joint naval drills”…

This weekend, China, Iran, and Russia began their first-ever joint naval drills in the Indian Ocean and the Gulf of Oman. The training exercises were announced by China’s defense ministry on Thursday, as all three nations continue to have strained relations with the United States and its allies.

The Russians have developed a very strong military presence in the Middle East in recent years, and Russia and China have both warned about what a war between the U.S. and Iran would mean for the entire region.

A major war in the Middle East would have very serious implications for the entire globe, and it would risk sparking a much wider conflict.

Right now our relations with Russia are already the worst that they have been since the end of the Cold War, and they just continue to deteriorate.

Most Americans don’t spend too much time thinking about a potential war with Russia, but over in Russia there is lots of talk about a possible military confrontation. In fact, Russia’s top general recently warned that the western powers are preparing for a “large-scale military conflict”…

Russia’s top general has warned a big war is coming in a chilling prediction amid ongoing tensions with NATO.

Valery Gerasimov, the chief Vladimir Putin’s general staff, has said he believes the West are preparing for a “large-scale military conflict”.

He was speaking at a senior briefing for the military – saying that the West has assigned “adversary status” to Russia.

Ultimately, one of the big reasons why Trump may have been so hesitant to be more aggressive with Iran is because he realizes that it could potentially spark World War 3.

Because once we go to war with Iran, the Iranians are going to start launching missiles directly at Israel, and Israel would undoubtedly strike back with overwhelming force.

Once the dominoes start falling, it could very easily set off a sequence of events that nobody is going to be able to control.

We definitely live at a time of wars and rumors of wars, and peace could be taken from the Earth very easily.

So let us hope that cooler heads prevail.

But if the Iranians keep pushing their luck, it is only a matter of time before Trump gets fed up, and when he decides to hit them directly he is going to hit them exceedingly hard.

Hewlett-Packard Enterprise (HPE) stock is sliding after a solid open following an investigative report from The Wall Street Journal found the  company was “overrun” with Chinese hackers.

The hackers allegedly came in through cloud service providers, where companies thought their data was safely stored; and as WSJ notes, once they got in, they could freely and anonymously hop from client to client, and defied investigators’ attempts to kick them out for years.

WSJ notes that cybersecurity investigators first identified aspects of the hack, called Cloud Hopper by the security researchers who first uncovered it, in 2016, and U.S. prosecutors charged two Chinese nationals for the global operation last December. The two men remain at large.

Cloud Hopper was something new for APT10 (short for Advanced Persistent Threat), one of China’s most evasive hacking collectives, according to researchers.

“You know the old joke of, why rob a bank?” said Anne Neuberger, the chief of the National Security Agency’s cybersecurity directorate. “Because that’s where the money is.”

A Wall Street Journal investigation has found that the attack was much bigger than previously known.

It goes far beyond the 14 unnamed companies listed in the indictment, stretching across at least a dozen cloud providers, including CGI Group, one of Canada’s largest cloud companies; Tieto Oyj, a major Finnish IT services company; and IBM.

HPE spokesman Adam Bauer said the company “worked diligently to remediate these intrusions for our customers,” adding that “the security of customer data is our top priority.”

“We strongly dispute any allegation that HPE was anything less than fully cooperative with government authorities from the outset,” Mr. Bauer said. “To suggest otherwise is patently false.”

And all of this breaks just days ahead of a planned visit to Washington by Chinese officials to sign thee phase one trade deal…

Another day, yet another Tesla wreck.

It was just hours ago that we highlighted a wreck where a Tesla slammed into the back of (yet another) inanimate fire truck. 

And yet again, here we are with another “peculiar” sounding Tesla accident. This one involving a Tesla that ran a red light near Los Angeles, California and slammed into another vehicle on Sunday, killing two people.

According to KTLA 5, the incident took place at Vermont Ave and Artesia Blvd. on Sunday. The driver of the 2016 Tesla exited the westbound 91 freeway “at a high speed” and then failed to stop at a red light at the next intersection. As a result, he slammed into a 2006 Honda Civic at the light.

There is no indication as to whether or not Autopilot played a role in the accident yet.

Witnesses and bystanders rushed to the scene to help. The two people inside the Tesla were transported to the hospital with injuries and, while the driver has not been arrested, an investigation is ongoing. The two people in the Honda were both pronounced dead at the scene. The driver was a 40 year old man and the passenger was a 39 year old woman.

Captn. John Pinto of the LAPD concluded: “Speed, distracted driving would probably play the big factor in this investigation. This does happen time and time again, and unfortunately, two citizens lost their life early this morning.”
 

Authored by Paul Joseph Watson via Summit News,

Bank of America says that one of the dominant trends for the 2020s will be the “end of globalization” as countries increasingly realize that the phenomenon has brought unsustainable “social disruption.”

In a report mapping out what to expect over the next decade, BofA analysts said that largely unchecked globalization, which ran roughly from 1981-2016, “is coming to an end.”

This change will take place due to “the widespread recognition that while globalization has meant lower consumer prices, it has also meant slower growth, precarious employment and social disruption.”

This massive shift will make commodities like precious metals and real estate safer investment because governments will move to impose protectionist economic policies.

“Countries will develop explicit national industrial policies and boost spending on R&D to foster local innovation, protect nascent industries, and shield national champions from hostile foreign takeovers,” the analysts said.

The transhumanist pursuit of “immortality” will also come to the fore in the next decade, as will a new tech arms race between the U.S. and China, dubbed the “Splinternet.”

China will eventually win the race, allowing Beijing “to reach national superiority in technology over the long term vis-a-vis Quantum Computing, Big Data, 5G, Artificial Intelligence, Electric Vehicles, Robotics, and Cybersecurity.”

“Ubiquitous connectivity” will also change the fabric of society, according to the report, with the ‘Internet of things’ embedded into virtually every new physical product, a development that critics argue will create an omnipresent Minority Report-style mass surveillance grid.

Although the forecast is full of trepidation, the fact that globalism is coming to an end and that we will begin to see the possible reversal of mass immigration should offer hope for many on the right.

*  *  *

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Even though Kim Jong Un’s threatened “Christmas gift” to the US never materialized, it does appear that President Trump did give Russia a sincere Christmas gift which may have saved many lives. 

The two leaders spoke in a holiday phone call on Sunday in which Putin thanked Trump for providing information which the Russian president said helped security services foil terror attacks over the holidays. Specifically it was a plot set to take place during New Year celebrations.

Putin thanked Trump “for information transmitted through the special services that helped prevent the completion of terrorist acts in Russia,” according to a Kremlin statement. A White House statement also confirmed as much.

It appears US intelligence provided information which identified two Russian suspects who were plotting to target St. Petersburg during upcoming New Year’s Eve celebrations.

According to details obtained by the AP:

Based on the U.S. information, the Russian security forces detained two Russians suspected of preparing to carry out terrorist acts in St. Petersburg during the upcoming holiday, state news agency Tass reported, citing the Federal Security Service.

The security service said it obtained the information from its “American partners.” It said it seized material from the suspects that confirms they were preparing terrorist acts, with no further details.

During the reportedly warm and cordial holiday catch-up chat the two leaders agreed to further focus on cooperation in counter-terrorism efforts.

Putin’s office said that “an agreement was made to continue bilateral cooperation in the fight against terrorism.”

The call was said to have been initiated by the Russian side in order to directly voice appreciation for such crucial intelligence sharing which thwarted a potential major disaster. 

However, the usual MSM pundits still managed to find something nefarious in the suspiciously “chummy” holiday chat and are demanding “answers”. 

Authored by Antonius Aquinas,

The efficacy of a metallic monetary system is beyond dispute at least among real economists which eliminates just about 95% of whom are now engaged in the “profession.”  Money, which gold is, allows for specialization, the division of labor, and provides the means for mankind to escape from barter and, thus, a primitive existence.  Like free trade, money naturally integrates mankind both among and between peoples.

A system of central banking with an unbacked paper currency is the antithesis of a gold standard.  Manipulation of currencies by central banks, mostly through debasement, hinders trade, creates distortions, and ultimately leads to the dreaded business cycle.  Murray Rothbard aptly describes the baneful results of state intervention in the monetary system:

…government meddling with money has not only brought untold tyranny into the world; it has also brought chaos and not order.  It has fragmented the peaceful, productive world market and shattered it into a thousand pieces, with trade and investment hobbled and hampered by myriad restrictions, controls, artificial rates, currency breakdowns, etc.  It has helped bring about wars by transforming a world of peaceful intercourse into a jungle of warring currency blocs…

While the economic efficiency of a gold standard is important, the ethical case for it is more compelling and was the reason why gold, as money, lasted as a medium of exchange for so long.  Gold/money has to be created through honest-to-goodness production and exchange.  The often dangerous mining of gold takes labor, capital goods, and land.  Turning raw gold into coinage is another process which requires a high level of specialization and production techniques.  Both are honest and morally sound activities which make for the betterment of life all around.

The ethical standing of central banking and its issuance of unbacked currency as money through the printing press, stroke of a computer key, or via the expansion of credit cannot stand similar scrutiny.  By any appraisal, central banking is immoral.  Through the creation of money, banks stealthy transfer wealth to those who control the money supply and those closely associated with it.

The ability of central banks to create unlimited amounts of money and credit has been the greatest redistribution scheme ever conceived.  The process ultimately leads to class conflict as the wealth disparity between the politically well-connected and those outside that nexus invariably widen.

Under a gold standard, none of this would take place.

Because of their lack and often disdain for economic doctrines, in particular, monetary theory, “economic nationalists” (really “economic ignoramuses”) have wrongly focused on trade as a factor in the continued decline of the middle and working classes.  China’s supposed unfair trade practices was a staple of President Trump’s campaign rhetoric and has continued through much of his first term.

The focus on trade has deflected attention from the real cause of worsening economic conditions for American workers and the enrichment of Wall Street.  Despite the blatant transfer of wealth via the Fed’s policies of suppressed interest rates and money printing since the 2008 Recession, economic nationalists continue to applaud President Trump’s tariff policies while the President continues to browbeat the Fed to do more of the same even calling for negative interest rates and more Quantitative Easing.

The Left rightly speaks out of the vast and growing inequality of wealth distribution, but like those who espouse economic nationalism, they fail to understand the reason for why the societal imbalance has occurred.  One remedy they propose – a “wealth tax” – will not address the problem.  Moreover, their “soak-the-rich” schemes would snare in their plunder (not that Leftists particularly care) many of the wealthy outside of the banking and financial sector of their legitimate, just gains.

The case for honest money must be made on ethical grounds.  The current system must be exposed and shown for the scam that it is: a massive redistribution scheme enriching the political elites and their closely aligned business and financial allies. While it is undeniable that a gold standard would lead to enormous prosperity, its reinstatement would remedy one of the great injustices that plague the world – central banking!

Veteran Wall Street strategist and Yardeni Research founder Ed Yardeni told CNBC on Friday that the stock market melt-up could run into exhaustion because valuation multiples are getting too rich.

“I’m concerned about a possible melt-up here,” Yardeni said. “I’ve been shooting for 3,500 for the S&P 500 by the end of next year, and we’re getting closer. Faster than I would have expected.”

He warned: ″[A] 10% to 20% [correction] would be quite possible if this market gets to 3,500 well ahead of my schedule.” 

Yardeni said he’s concerned about the market’s latest melt-up and how everyone isn’t worried anymore. 

“This is not a cheap market,” Yardeni said. “In early October, I looked around and said, ‘you know, maybe there’s some value overseas. So maybe you really got to look at emerging markets.'” 

Several months ago, Yardeni sounded more carefree, appearing on CNBC to discuss his 2020 year-end S&P 500 target of 3,500 (about 8% higher from Monday morning prices). 

In Nov., he warned valuations might have finally become stretched to the point that dangerously rapid “melt-ups” to new ATHs could prove destabilizing. 

He also said that if the S&P 500 forward earnings multiple hits 19 or 20 (compared with roughly 17 right now, which is above the long-term norm of 15-16), investors could risk sparking a “nasty correction.” However, Yardeni focuses on forward earnings in his interview; his propriety Yardeni fundamental indicator is also beginning to reflect euphoric sentiment.

A close-up suggests why the decoupling occurred…

The surge of liquidity via the Federal Reserve’s NOT ‘Quantitative Easing’ has been responsible for the market rising every single week since the program was activated, despite collapsing fundamentals. 

Yardeni warned he wouldn’t be buying US stocks at the moment and said wait for the next pullback. 

…Watch the interview below:

Authored by Tsvetana Paraskova via OilPrice.com,

An eventful 2019 wraps up a decade of turmoil in oil markets, in which Brent Crude prices fluctuated from as high as US$125 a barrel in 2012 to as low as US$30 per barrel in January 2016.  

Geopolitical turmoil, economic growth, soaring U.S. shale production, and OPEC’s various policies to try to set the trends in oil prices marked the decade which is drawing to a close.

For the decade beginning in 2020, the key factors determining the price of oil are likely to be similar to those we have seen over the past decade, Andy Critchlow, Head of News, EMEA at S&P Global Platts, writes.

The state of the global economy, U.S. oil production and exports growth, and the OPEC+ alliance between the cartel and a dozen non-OPEC producers led by Russia will continue to influence the price of oil through 2030.

Geopolitical flare-ups and U.S. sanctions policies toward major oil producers, including Iran and Venezuela, will also shape the supply side of the market over the next few years.

On the demand side, the growing share of renewables in the energy mix and the increased use of electric vehicles (EVs) will begin to displace meaningful volumes of fossil fuel demand in power generation and oil demand in transportation over the next decade, many analysts say. Growing climate concerns may also start impacting investment decisions in new fossil fuel production, including oil.

The fundamental supply and demand picture will likely be ‘more of the same’, but the push and policies toward greener economies could be the new factor shaping oil markets and influencing oil prices over the next decade.

According to S&P Global Platts Analytics, alternative energy—including renewables, higher EV penetration, and hydrogen use—“will limit the overall call on fossil fuels.

“As we enter a new decade, the energy complex feels like it is all cascading towards a race to the bottom,” S&P Global Platts Analytics said in a research note.

Many forecasts predict oil demand peaking at around 2030 or in the 2030s. Global oil demand will reach its peak in the mid-2020s and flatten out in the 2030s, the International Energy Agency (IEA) said in its latest annual World Energy Outlook.

“Oil demand for long-distance freight, shipping and aviation, and petrochemicals continues to grow. But its use in passenger cars peaks in the late 2020s due to fuel efficiency improvements and fuel switching, mainly to electricity. Lower battery costs are an important part of the story: electric cars in some major markets soon become cost-competitive, on a total-cost-of-ownership basis, with conventional cars,” the IEA said in its outlook to 2040.

Unsurprisingly, OPEC continues to see oil as the fuel with the highest share in the global energy mix through 2040. The Organization of the Petroleum Exporting Countries expects EVs to hold a share of just 13 percent of the global car fleet in 2040 and sees the majority of the growth still coming for conventional internal combustion-engine vehicles.

OPEC has also been warning since the oil price crash in 2015-2016 that reduced investments in conventional oil after the price plunge will start to impact global oil supply in the 2020s. Through 2040, the world will need US$10.6 trillion in total investments in oil, OPEC said in its World Oil Outlook 2019 in November.

In the new decade, OPEC and its allies in the current OPEC+ pact will have to reckon with U.S. shale production, where growth is slowing these days as prices remain bound in a narrow range. But U.S. production will still grow in 2020, by more than 1 million bpd, according to nearly all major forecasts. U.S. shale production is expected to start declining in the middle or late 2020s, according to OPEC’s estimates.

The OPEC+ alliance will be tested as early as this coming March, when the partners are meeting to discuss how to proceed with their production cuts.

The coming decade will also test how (ir)relevant OPEC is on the global oil market, considering the supply growth from countries outside the production pact, the rising share of renewables and EVs amid falling technology costs, and growing concerns about climate change.

Global economic growth and recessions will undoubtedly also impact oil demand and oil prices over the next decade. So will the ever-restive Middle East with the Saudi-Iran antagonism and global powers vying for influence in a region home to one fifth of the world’s daily oil supply.

After US fighter jets bombed five facilities controlled by the Kataib Hezbollah militia group in Iraq and Syria on Sunday in response to the killing of a U.S. civilian contractor in a rocket attack on an Iraqi military base — which in turn killed at least 24 people and injured at least 50 — Iraqi militias are warning a “strong response” is coming. 

And in another sign that nothing good can come of the bloody tit-for-tat which could escalate into major regional war, the US has managed to make many more enemies than allies with the Sunday airstrikes, starting with Iraqi President Barham Saleh, who slammed the attack as “unacceptable and considered as an aggressive action and violation of Iraqi sovereignty.”

One of Iraq’s most powerful Popular Mobilization Forces (PMF) commanders, Jamal Jaafar Ibrahimi (also, Abu Mahdi al-Mohandes), put the some 5,000 American troops in Iraq on notice, saying they are preparing a response.

He threatened, according to Reuters:

“The blood of the martyrs will not be in vain and our response will be very tough on the American forces in Iraq.”

Over the weekend and into Monday US forces, mostly based in the country’s north where they’ve been training counter-ISIS Iraqi units, have reportedly tightened security and are on a high level of alert. 

This after a Friday night rocket attack of unknown origin against a US base in Kirkuk which killed a US contractor. The subsequent US bombing raids were based on Washington’s immediate assumption and charge that Kataib Hezbollah or another “Iran-linked” Iraqi militia was behind it. 

Essentially the US administration has blamed Iran for the new “aggression” after earlier this month Secretary of State Mike Pompeo Iran that any attacks by Tehran or proxies that harmed Americans or allies would be “answered with a decisive U.S. response”.

For its part, Iran has vehemently denied having anything to do with prior attacks on US bases while charging the US with conducting “terrorism” on sovereign Iraqi soil.

“We strongly condemn this aggression on Iraqi soil and say it’s an example of terrorism,” Iran’s Foreign Ministry said in a statement. “The U.S. has to respect the territorial integrity and independence of Iraq and to stop interfering in Iraqi internal affairs.” Iran also demanded the US end its ongoing “occupation” in the region.

The entirety of Iraq’s leadership seems to be of the same mind, and even rejected the US plan to strike when they were tipped off immediately before it happened, per NBC:

In a statement, [former PM] Abdul-Mahdi said Secretary of Defense Mark Esper had called him about a half-hour before the U.S. strikes Sunday to tell him of U.S. intentions to hit the bases of the militia suspected of being behind Friday’s rocket attack. Abdul-Mahdi said he asked Esper to call off the U.S. plan.

One byproduct of the major US strikes on Sunday is sure to be that more and more of the Iraqi population will view the Americans, and not the Iranians, as the foreign occupiers.

This dramatic escalation by Washington is only likely to push more popular support toward the Shia PMF, and strengthen the movement in parliament to have US forces legally expelled, especially with the demise of the ISIS threat.