Excerpt GEAB 89 : The oil industry crisis

- Excerpt GEAB 89 : The oil industry crisis -

The current fall in oil prices squarely caused by this strategy of despair is in the process of smashing the oil/gas industry. The Ukrainian crisis, far from allowing the West to get its hands on Russia, is in the process of forcing it to rethink its dependence on Europe as a customer for its gas (71).

Excerpt GEAB 89 : The oil industry crisis
Chart 7 – Russian gas exports, by country, 2012. Source: EIA

All these radical changes in oil geopolitics are both the cause and consequence of a crisis that is often ignored: that of the oil industry. One thought it had been saved thanks to shale oil; it will lose because of shale oil.

Now, many businesses are in fact fleeing shale oil extraction: whether due to poor profitability, as in Texas (72), in the US Northeast (73), or again in Poland (74); because of protests against its extraction in England (75) and in Romania (76); or because of sanctions against Russia (77) … There are countless victims. Oil at $80 a barrel is beginning to spread panic and an article has already announced the first signs of a drilling slowdown (78). The biggest companies are themselves obliged to sell many assets to bail themselves out (79); their production has fallen drastically whilst the investment needed is increasingly significant (compare the chart below); all the oil businesses are increasingly indebted (80); oil operations (shale in particular) suddenly risks being no longer profitable if the price of a barrel settles below $80 long-term, funding is increasingly difficult in these times of economic scarcity, etc.

Chart 8 - Capital spending (red) and production (grey) of the 11 largest oil companies. Source : Bloomberg

2015 : major risk in the oil markets

The oil industry is in bad shape stop the global systemic crisis, touching the country at the heart of the system – the US –, clearly affects the main ingredient of their domination over the last 40 years: the petrodollar. Therefore, it’s hardly surprising that instability is hitting the oil economy head on.

The shale oil mirage is increasingly documented. Optimistic estimates forecast rising or steady production until about 2020 (only); others believe that a fall is likely from 2016. The oil price, which has fallen to get close to $80 a barrel for some time now will precipitate oil companies’ losses… and the same players whose best interests were to participate in the big shale oil and gas scam in the 2000s will henceforth have the best interest in withdrawing from it and even reveal it to allow the price to rise and allow them to survive.

It is likely that Saudi Arabia, the main loser from this US strategy, has decided to stop the game, precipitating prices to the downside, forcing the scam to be revealed and forcing a market of supply and demand to be put back in place.

That said, the damage is enormous, once again. The previous system of global energy governance is definitively broken. And if a new system isn’t created in the shortest possible time, Europe is well placed to know what to expect in a deregulated system of access to energy resources where the law of the strongest prevails.

Additionally, the petrodollar is crumbling at high speed. All these factors are converging towards a shock to the oil market in the next two years. Times are going to be hard for the oil companies. Since they represent a significant share of global stock market capitalization, the domino effect on the stock exchanges and the economy won’t be far behind. An enormous shock to the financial markets could occur in 2015 which isn’t the fault of the banks this time, but a link in the oil industry.

(71) There is much talk of Europe's energy dependence on Russia. Not only is Russian gas part of the EU's energy independence strategy, which needs a large number of suppliers to guarantee it (Norway, Algeria, Canada… and Russia) but, in reality, there is (was) a dependence, which was much more on the Russian side, where 80% of gas production heads towards the EU and the Ukraine (the 20% remaining going to Turkey – see the chart). The EU has certainly counted on this dependence to force Russia to yield and require it to negotiate on its terms. But the world has changed… It's what the ideologues by nature always forget.
(72) Source : MA&H, 19/12/2013.
(73) Sources : Shale Markets (17/07/2013) ; Shale Energy Insider (16/04/2013).
(74) Source : Sofia Globe, 10/05/2013.
(75) Source : C2ST, 16/08/2013.
(76) Source : AP, 07/12/2013.
(77) Source : PetroGlobalNews, 24/09/2014.
(78) Source : OilPrice, 10/11/2014.
(79) Sources : New York Times (20/01/2014) ; Oil Man .
(80) Source : Houston Public Media, 07/07/2014.

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GEAB N°90 - Contents

- Published on December 15, 2014 -

Global systemic crisis 2015 – Oil, currencies, finance, societies, the Middle East : Massive storm in the Western port!

. « Global systemic crisis: the end of the West we have known since 1945 »
. The oil crisis is systemic because it is linked to the end of the all-oil era
. The US in one hell of a state
. Europe post-Ukraine: lots of questions
. Three missions for the new Europe: resolve the Ukrainian crisis, put Euro-Russian relations back on the right path, avoid a European QE
. Middle East: traditional alliances’ big waltz
. Saudi Arabia, Iran: the allies change sides
. And Western « values » in all this
Read the public announcement

2015 – new phase of the crisis: the oil systemic crisis

. The impact of speculation
. Price War
. Systemic oil crisis and finance
. Systemic oil crisis and geopolitics

Investments, trends and recommendations

. Oil: beware!
. Energy intensive industries like airline companies
. Renewable energy: the good and the bad
. 2015: Euro & Yen rebound
. Gold: still safe

Evaluation of our anticipations for 2014
(from GEAB N° 81 in January 2014): a 69% success rate