As 2015 comes to a close, now pushing this period of torment into 15 months, I am preparing myself mentally for another 6 months of oil price weakness. 2015 has seen a steady beat of oil and gas company bankruptcies which will turn into pseudo permanent decommissioning of oil and gas assets.
These assets will be absorbed into other corporate bodies at fire sale prices where they will remain economically idle for years. Their old masters will leave and not return to this industry.
Much of what happens next hinges on foreign nations. State owned oil companies usurped with the political appointees of increasingly desperate and mostly unelected rulers have been ratcheting up production, trying to stave off judgment day. The US oil production is one of the more fascinating social phenomenon of our time, as it lay bare the level of reliance that these places had on oil revenues keeping populations passive.
Would you have guessed that Venezuela’s Chavismo would be driven from power inside of 7 years, back in 2009? Most of us knew that the structure was unstable and expected something like this eventually. But US oil growth is almost single handedly responsible for deconstructing Chavismo and it did so in the pace of 15 short months.
As the next level of pain ratchets up, those of us with high cash levels sit tight and bide our time, while the less scrupulous who rode into late 2014 with none (or God forbid margin positions) get swallowed into the abyss.
After they are gone let’s see what’s left in 2016.
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Cain, what u think of Chanos saying – “if I was an oil producer/producing country, I’d pump all I could now before it becomes worthless in 15 years”
I think Chanos is an attention whore
LOL .. so u don’t like him and view those comments as mere hyperbole in order to generate an attention-getting soundbite and therefore oil will not become worthless but do you think it will become worth less in 15 years precisely because of alternatives such as EV’s as he cites?
No because I don’t bet on something like EV’s with a 15 year horizon. They are unpredictable; just ask the EV crowd from the 90’s.
There are two things here that will likely derail such a prediction:
1) There is no guarantee developing countries will be able to skip directly to the EV stage, which has some grid requirements
2) ICE technology could easily improve from the atrocious 20% efficiency it has today, matching or derailing EV’s only slightly less atrocious 30% efficiency