Oil Faces Existential Crisis As Mother Nature Finds A Way
Headlines around the outlook for crude continued to deteriorate on Monday, as OPEC chimed in with a weaker demand outlook just days ahead of a virtual ministerial meeting that will double as a 60th anniversary celebration.
Although the cartel's forecast for OECD economies was revised higher by 0.1 Mb/d thanks to "lesser-than-expected declines in all sub-regions" during the second quarter, the outlook for non-OECD oil demand is now lower by roughly 0.5 Mb/d due in no small part to India, which i
Bussiness as usual doesn’t bode well for shale.
No it doesn’t, I think shale is pretty much toast and soon the banks who lent them tons of cash are going to own oil underground… it won’t be the GFC but it won’t be good. I suspect by the time demand for travel recovers we will have begun to seriously dismantle general commuting demand. If everyone spends a year not driving more than 300 miles at a time electric begins to become more attractive. Even more so with people telecommuting to the office. I know I’ll probably go from 5 days a week to closer to 2 at most in the office if and when I ever go back.
It doesn’t bode well for shale.
Could be a good one to leave in the ground. 100 years from now when all the easy oil is tapped and it’s more expensive to extract the remaining reserves (and there are tons and tons of reserves to last well into the future), then frack it. It’s a very valuable resource. Use other peoples’ oil, then use our oil. Obviously, there are job, taxes, industry sustenance, environmental, and national security issues involved in all of this.
There will still be booms and busts. Certainly, the next boom in price is already forming, but is still maybe two to three years out. Depends on recovery. Depends on the economic scarring and which changes in habits are permanent. Still, it’s probably not a good time to go out as a major and acquire a bunch shale plays if you want to stay in the Dow. Heck, just let EOG have the space.
The BP overview published on their site has some nice charts. Another group, RethinkX, is good for more discussion of the public policy relating to this all this.
There are so many imaginable 2nd and 3rd order effects.
Exxon getting kicked out of the Dow makes more and more sense. With Exxon and their strategy, focusing on traditional reserves, we know we’ll have enough oil to make plastic bags for centuries into the future. Big win for takeout restaurants and consumer convenience.
The oil equities (the U.S. companies) could be a traders market for years ahead. I look at Altria. It is like a downward sine wave. The oil equities could be the same, buy on the low, get the 5% dividend, sell a year later, buy a year later.
Still it won’t be straight down. Some analysts are expecting a demand shock in a period going out two to three years. No drilling, no new oil, prices go up. It’s going to be a really good trade but way to early still.
The president of the US is contemplating a bailout for refiners. This is exactly the use of public funds that should not be happening in a world of declining use of carbon-based fuels. Let the shareholders figure it out. This is an example of the kind of decision we are collectively going to have to make over the next decade and longer.
As far as the oil majors, the Europeans have been diversifying further into trying to become energy companies. I was happy to see Shell cut their dividend. In a pre-COVID world, they might not have been able to make the shift. Now, they might be able to make the shift.
Oil is not dead. In fact, the good news is that it’s so valuable (for so many industrial and transportation uses) and that we have so much of it yet. I liken the death of oil conversations to the death of the dollar conversations. Not going to happen. Still, if global production levels out in the 50-65Mbpd range, that might be good enough to meet demand while providing breathing room for the burning environmental problems.
I haven’t read or seen too much on the developing world’s demand. Specifically sub-Saharan Africa. Maybe because the market for oil in this large region is still so small. Point being that the the developing regions can either follow the the technological path of the West on this one or leapfrog (like going straight to cell and skipping land lines).
It’s going to be a difficult and interesting time.
Oil is not going away so fast nor is natural gas. On the other hand coal is going to be a stranded asset very soon.
I wish that were the case. India and China are not going to let go of cheap electricity that easily, not to mention many third world countries short of funds. And developed world countries like Canada and the US hold their noses and export coal while cutting their own burning.