Futures Forum: The end of peak oil: "supply just keeps expanding while demand fails to take off"
There were fears that this would be the end of renewable energy:
Futures Forum: Squaring the circle: low oil prices, high renewable prices ... ... and high carbon emissions
The Financial Times has been following the story very carefully:
The New Oil Order
Takeaways from the FT’s series on the impact of the crude price plunge
The New Oil Order: In depth news, commentary and analysis, in a series from the Financial Times
Oil & gas companies news, with analysis of the oil and gas industry - FT.com
Things have really sunk to a low:
Brent crude dropped to its lowest level in more than a decade on Monday, surpassing lows reached in the depths of the financial crisis, hit hard by a relentless rise in global production that looks set to swamp the market again in 2016.
Even though demand has been robust this year crude inventories have continued to rise at more than 1m barrels a day, with storage tanks filling quickly and long lines of ships forming at key ports around the world.
But if things are looking bad for oil, then...
Rise of alternative energy sources is feeding the bears
t the tail-end of the year it is hard to find anyone but a pessimist when it comes to the oil price in particular and commodities in general. Crude this week pushed past the lowest level set during the worst moment of the financial crisis, to rest briefly at an 11-year low. Investors in raw materials, as judged by the widely followed Bloomberg commodities index, face a third year of losses.
Such moments of pessimism can provide profitable opportunities, although now is perhaps not the time for anyone whose pay depends on calendar year assessments of performance to take risks by betting on a rebound. Safer to do that in the new year with a clean slate and time to correct mistakes.
A bigger problem arises, however, when trying to assess what the “right price” for a commodity might now be: how markets are still shaped by the long booms which preceded them. What sort of assumptions about supply and demand are appropriate when the world is awash in oil and ore produced by companies which laid plans and sank capital when prices were far higher?
For instance, problems at energy companies involved in US fracking have led to some defaulting on debt. Some see that as a deliberate aim of the large oil producing countries that have started a price war to remove weaker competitors. Financial pain might be expected to reduce the supply of oil, and so eventually move the market back towards a point of balance. Yet credit analysts at Goldman Sachs find only minimal declines in production at companies in default. If you’re in trouble, keep pumping or digging, reorganise and hope you can outlast the competition.
What matters then is all the capital spending when times are good. To think prices will be sustainably higher requires an assumption that chronic under-investment is in prospect for years ahead. Bernstein, for instance, suggests this as a scenario by which crude oil might hit $150 a barrel by 2020. Yet it also imagines an alternative by which electric vehicles get faster, cheaper and more efficient, and capital is sunk into solar panels instead of oil wells: try a 2020 price of $15 a barrel instead.
Given such possibilities and imponderables, no wonder the oil market is full of pessimists.