MacroVoices #253 Art Berman: U.S. Oil Production Still Set for Steep Decline in 2021

Episode Summary

Executive Summary: Macro Voices episode 253 centers on a 2021 macro outlook marked by reflation, dollar debasement, and rising commodity prices. Eric Townsend and Patrick Serezna frame equities, gold, oil, and rates as being driven less by healthy growth than by extreme monetary stimulus. Feature guest Art Berman argues U.S. oil production has already begun to decline and may fall sharply, setting up a possible oil price surge later in 2021.

Main Topics: Equity Market Regime: Bubble Peak vs. Crack-Up Boom (Priority: 5/5): Eric outlines two paths for stocks: a late-stage blow-off top like Jeremy Grantham suggests, or a Mises-style crack-up boom where nominal asset prices keep rising as currency purchasing power erodes. U.S. Dollar vs. Dollar Index (Priority: 5/5): The hosts distinguish between the dollar's real purchasing power, which they see deteriorating, and the dollar index, which may be less clear because other central banks are also devaluing aggressively. Crude Oil Outlook and OPEC+ (Priority: 5/5): Oil is viewed as a reflation trade with upside toward $65-$75 if demand normalizes and U.S. production declines, helped by OPEC+ restraint and tight inventories. Gold, Bitcoin, and Scarcity Trades (Priority: 4/5): Gold is expected to rise over the long run, but Bitcoin is seen as siphoning speculative scarcity demand from gold while participating in a classic speculative mania. Interest Rates, Inflation, and Commodities (Priority: 4/5): The 10-year Treasury yield near 1% is framed as unsustainably low in nominal terms but not tradable; the real opportunity is in second-order inflation and commodity effects. Art Berman’s U.S. Production Decline Thesis (Priority: 5/5): Berman argues the U.S. shale decline has started, with the serious phase likely in late Q1 or early Q2 2021, driven by well declines, fewer active wells, and long drilling-to-production lags. Post-game Broad Market Rotation and Bubble Behavior (Priority: 4/5): Patrick highlights small-cap outperformance, parabolic moves in Tesla/Bitcoin, commodity breakouts, and rising inflation expectations as evidence that 2021 may be even wilder than 2020.

Key Arguments: Markets are not rallying because the economy is strong; ultra-low rates and massive money creation are the real drivers. The U.S. dollar will lose real purchasing power over the next several years, even if the dollar index does not collapse versus other fiat currencies. Oil prices can rise significantly because supply matters more than demand in the near term, and U.S. production may fall faster than EIA suggests. Berman argues EIA underestimates the lag from drilling to first oil; his weighted average is 140 days versus EIA’s much shorter assumption. U.S. production is already down materially from earlier in 2020, and the decline should intensify later in 2021 as well completions catch up. Gold remains a long-term bull market, but Bitcoin is increasingly competing for the scarcity trade and may be in a classic bubble phase. Low Treasury yields are not the trade; inflation, stagflation, and commodity reflation are the consequential second-order effects. A rising rig count does not immediately restore production because shale activity has long operational and capital lags.

Data Points: U.S. crude oil production decline from peak: almost 3 million barrels/day - Art Berman said October 2020 production was barely above 10 million bpd, down from earlier 2020 levels EIA STEO production estimate: 11.0 to 11.3 million barrels/day - Discussed as the official estimate that Berman считает too high U.S. oil production 914 data (October 2020): barely above 10 million barrels/day - Berman said this is the gold-standard reported figure Current U.S. comparative inventory draw rate: about 5 million barrels/week - Used to argue stocks are nearing the five-year average U.S. comparative inventory above five-year average: 30 million barrels - Berman said the gap had fallen sharply from mid-June OPEC demand-supply deficit forecast: 1.38 million barrels/day by Q3 - Berman cited OPEC’s balance sheet as reason for supply caution Potential U.S. jet fuel share of demand: about 6% - Berman estimated aviation fuel’s share of global oil consumption Kerosene/jet fuel recovery: 57% - Recovery metric relative to the five-year average and minimum Gasoline recovery: 84% to 85% - Berman said gasoline had stalled below full recovery Diesel recovery: 134% - Berman noted diesel demand exceeded its five-year-average recovery level WTI near-term price target: $65 to $75/bbl - Eric Townsend’s outlook if demand normalizes and U.S. production falls WTI technical pullback risk: $8 to $10 - Eric expected a correction after the run toward the low-$50s Gold long-term target: $5,000/oz by 2030 - Eric’s long-term view on gold Gold cyclical target: around $2,300/oz in 2021 - Eric’s near-term expectation during the current run Bitcoin move since prior breakout call: more than 100% in less than a month - Eric said his breakout call had already played out dramatically 10-year Treasury yield level: about 1.0% to 1.08% - Discussed as a psychologically important breakout level Tesla market performance: approaching $800/share and ~600% off March lows - Used in the post-game as an example of bubble-like momentum Bitcoin performance: approaching 600% off March lows - Compared with Tesla as another parabolic speculative move Weighted average start-to-first-oil time: 140 days - Berman’s state-level data for TX, NM, OK, ND, and offshore Gulf of Mexico EIA assumed time from rig to first oil: 60 days - Berman disputed this as unrealistic Active U.S. wells decline: down 34,000+ wells since Aug. 2019 - Berman said this was about a 12% drop in active wells Past price excursion above yield curve: up to 30% - Berman used historical excursions to justify possible WTI near $65

Pivotal Quotes: "What I can say with confidence is the market is not rallying because we've got a healthy, strong economy." — Eric Townsend: Eric’s opening view on why equities are rising despite weak real economic conditions "The part that I have strong conviction about is the U.S. dollar loses real purchasing value going forward." — Eric Townsend: His distinction between the dollar’s real value and the dollar index "The answer to your question is: I think it easily could be $65." — Art Berman: Berman’s oil-price upside estimate tied to production decline and inventory tightness

Implications: The episode argues 2021 could be defined by reflation, weaker real currency value, and a major commodity upcycle. Investors should focus less on nominal rate moves and more on oil, inflation hedges, and speculative excess in assets like Bitcoin and Tesla.