Good morning, here's what the Oilman has for you today:

• Brace Up, The Saudis Need Oil at $100

• Shocker: JP Morgan Warns Transition Will Take “Gen …

• Tweet of the Day

Brace Up, The Saudis Need Oil at $100

Saudi Arabia needs oil at close to $100 to balance its budget.

That’s according to the IMF and is a 21% upward revision on an earlier estimate.

It’s a result of the Saudis sacrificing market share by slashing production.

It also means oil may be going higher.

One way or another

The funny thing is that the IMF report came a day before the news that Israel had attacked Iranian targets.

Could be a coincidence, of course.

But it could be something else.

The Saudis have no love for either Iran or Israel.

But hey, if the two fighting pushes oil higher, Riyadh won’t argue.

And it wouldn’t lift a finger to stop them.

Especially when the U.S. can’t reverse the price rally.

Not this time, not with an empty SPR.

And there is no way U.S. drillers can ramp up quickly enough.

In case someone needs to offset Iranian oil outages, should these occur.

The OPEC+ cuts are here to stay

The IMF report suggested that if OPEC+ ends the cuts, Saudi’s breakeven will fall to around $85.

But ending the cuts would lead to a massive drop in prices.

There’s no question about that.

So they won’t do it.

The cuts will likely be extended into the second half.

Unless that is, Iran’s oil output gets paralyzed by the Israelis in the meantime.

Interesting times in oil.

Shocker: JP Morgan Warns Transition Will Take “Generations”

JP Morgan has warned the transition away from oil and gas will take much longer than thought.

The bank blamed interest rates, inflation, and wars.

And it’s not the only one sounding the alarm bell.

Governments out of money

Higher rates and inflation are sapping state funds for the transition.

Government debt is on the rise.

Because of this, JP Morgan predicts that governments will have to revise aggressive targets.

Rystad Energy and Wood Mac have separately concurred.

Rystad warned that wind and solar are more capital-intensive and that makes them more vulnerable to rate hikes.

Wood Mac said that a 2% rate rise means a 20% hike in wind and solar costs.

Not exactly economical.

And there’s nothing anyone can do about it.

“Subpar returns” truth bomb

 Rates are a problem but the transition has an even bigger one.

Because transition investments “currently offer subpar returns”, per JP Morgan.

To call this uncomfortable would be putting it mildly.

Transition plans rely heavily on private investment (see debt problem).

But with “subpar returns” this investment will not be forthcoming.

Especially as transition costs continue to soar.

All this offers a valuable lesson.

The lesson is that energy transitions can only succeed if they happen naturally.

Think firewood to coal and coal to oil and gas.

Forcing a transition is doomed.

It would just take a while until everyone realizes it.

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