Oil Price Wars and Coronavirus
I've said it before, and I'll say it again most likely. The oil industry WILL die.
As a bit of a repeat of past statements; the Earth WILL run out of oil. So whether economic forces kill it or not, it will STILL die. Even that death is predicted to occur within the life of some alive today, and maybe pushing a generation or 2 beyond that. But, I don't think it will last in its current form anywhere near that long. The world economy is pushing towards renewables.
Basically, while the current economic situation is certainly bad, it should have been something any business or region heavily invested should have seen coming and been prepared for. And don't say "no one could have predicted this". I predicted it, and I read many other such predictions. No I didn't predict COVID-19 or the exact timing. But, I did predict the value of being in oil and gas plummeting. And hard.
And while Alberta's Premiere lamented about the coronavirus impacting his beloved oil and gas industry, the price war proves the inevitability. Yes, the coronavirus accelerated the issue. But, tensions between Russia and other OPEC nations were boiling over long before the outbreak. For many months in fact. Russia had already defied OPECs targets on a few occasions. This price war was going to come, coronavirus or not. And the price war is impacting oil much more than coronavirus ever was.
The problem is that oil demand is decelerating. Demand isn't dropping yet, so some people naively think that the market is still in good order. The problem is, oil companies were invested heavily in improving efficiency to maximize profits. And this was all planned around the rate of growth of the industry prior to the slow down. This means that, even as demand grows, capacity is growing even faster, which is depressing the market. Which is why OPEC was trying to limit output to drive prices back up. Which is why member nations are now breaking rank.
These countries themselves are like mini-Albertas. "Mini" in that oil and gas make up a smaller percentage of their GDP, but like Alberta in that this industry is key to their economic success. Not "mini" as in them being physically smaller or having a lower population (obviously). This makes the output restrictions a harder pill to swallow. Which is in turn why this was inevitable.
Both India and China, the two countries most responsible for continuing to drive oil demand are making major national commitments to switching to renewables. These countries as simply so massive in terms of population that they dwarf just about everyone else. No burgeoning 3rd world country or combination thereof can supplement the loss in demand from these countries weaning off of oil.
So, sure, I couldn't have said a collapse would come this soon. But, it likely would have happened in the next 3-5 years.
And, from what I've read, people with actual knowledge of these industries predicted this years before I'd even considered it.
If this goes on much longer there will be very few players left in the game. Oil prices may return, purely because the number of decimated businesses will create a constraint on the resource. But, actual recovery will take long, and recovery itself will drive prices back down. Not up. And the temporary inflation in the cost of oil and gas will provide a greater reason to invest in renewables as the price spike will bring renewable and fossil fuel energy consumption closer to parity and the volatility of the market will be rubbed in everyone's faces.
And as with the impact these heavy fluctuations will have on such industries, it will be a death my a thousand paper cuts. The price war was just an opening salvo, launching millions of papers into the air upon which the industry will continue to cut itself.
As a bit of a repeat of past statements; the Earth WILL run out of oil. So whether economic forces kill it or not, it will STILL die. Even that death is predicted to occur within the life of some alive today, and maybe pushing a generation or 2 beyond that. But, I don't think it will last in its current form anywhere near that long. The world economy is pushing towards renewables.
Basically, while the current economic situation is certainly bad, it should have been something any business or region heavily invested should have seen coming and been prepared for. And don't say "no one could have predicted this". I predicted it, and I read many other such predictions. No I didn't predict COVID-19 or the exact timing. But, I did predict the value of being in oil and gas plummeting. And hard.
And while Alberta's Premiere lamented about the coronavirus impacting his beloved oil and gas industry, the price war proves the inevitability. Yes, the coronavirus accelerated the issue. But, tensions between Russia and other OPEC nations were boiling over long before the outbreak. For many months in fact. Russia had already defied OPECs targets on a few occasions. This price war was going to come, coronavirus or not. And the price war is impacting oil much more than coronavirus ever was.
The problem is that oil demand is decelerating. Demand isn't dropping yet, so some people naively think that the market is still in good order. The problem is, oil companies were invested heavily in improving efficiency to maximize profits. And this was all planned around the rate of growth of the industry prior to the slow down. This means that, even as demand grows, capacity is growing even faster, which is depressing the market. Which is why OPEC was trying to limit output to drive prices back up. Which is why member nations are now breaking rank.
These countries themselves are like mini-Albertas. "Mini" in that oil and gas make up a smaller percentage of their GDP, but like Alberta in that this industry is key to their economic success. Not "mini" as in them being physically smaller or having a lower population (obviously). This makes the output restrictions a harder pill to swallow. Which is in turn why this was inevitable.
Both India and China, the two countries most responsible for continuing to drive oil demand are making major national commitments to switching to renewables. These countries as simply so massive in terms of population that they dwarf just about everyone else. No burgeoning 3rd world country or combination thereof can supplement the loss in demand from these countries weaning off of oil.
So, sure, I couldn't have said a collapse would come this soon. But, it likely would have happened in the next 3-5 years.
And, from what I've read, people with actual knowledge of these industries predicted this years before I'd even considered it.
If this goes on much longer there will be very few players left in the game. Oil prices may return, purely because the number of decimated businesses will create a constraint on the resource. But, actual recovery will take long, and recovery itself will drive prices back down. Not up. And the temporary inflation in the cost of oil and gas will provide a greater reason to invest in renewables as the price spike will bring renewable and fossil fuel energy consumption closer to parity and the volatility of the market will be rubbed in everyone's faces.
And as with the impact these heavy fluctuations will have on such industries, it will be a death my a thousand paper cuts. The price war was just an opening salvo, launching millions of papers into the air upon which the industry will continue to cut itself.
Comments
Post a Comment