Thinking oil: Sell it while you can

Ian's Rural Ramblings

In recent decades, much of Alberta’s wealth and woes have spun around the black stuff that there is still an abundance of, oil. There’s been boom and bust and we’re still someway off the dramatic oil price crash and its consequences of the 1980s.

The 1980s bust was worse, so far, yes. But there was another difference, in an oil dependent world economy, one could always see some sort of bounce back, even if it was a long time off. This time, and I’ve been saying this for a while, for the life of me, unless there is a cataclysmic paradigm shift that brings oil back, I just can’t see it.

OPEC no longer has the power and control it enjoyed for decades when even a rumour could put $s on a barrel of oil. Quite the contrary. The rumours seem to be shrugged off by increasingly cynical markets. Almost daily, we see announcements, environment friendly or not, that savvy markets demand for oil declining.

There is a worldwide glut. Plain and simple. It’s just basic supply and demand economics. There is too much supply for a seemingly increasing declining demand and the result is that the price is going to go south and likely stay there until the supply is a little under the demand. Of course, nations and corporations are all going to voluntarily cut production to balance the market so its fair for everyone. NOT.

There must be a lot of investors that thought that everything oil could only turn to gold. In terms of long term plays that major oil investments usually are there must be a lot of doubt right now. Recent announcements from Tesla over a more affordable vehicle, Volvo committing to having all vehicles hybrid or electric by 2019, France banning the sale of petrol and diesel engine cars by 2040 are all writing on the wall.

I’m arguing here that while decisions to use alternative energy may have an element of environmental protection about them I would say they’re more likely to be made because they simply make commercial sense in the markets of today and going forward.

I’ve always said that it is a scandal that Canada imports oil derived products that it could make itself. Yes, this is protectionist but it also makes a lot of sense. Make the added value at home. Hopefully, some skilled oil field service businesses can turn their hand to other markets. And, there will still be a conventional energy industry for some time yet. But, I think the peak has been reached, which leaves only one way to go.

Oil is still a major global economic player and sadly, I think what’s next will be a price war as perhaps giants like Saudi Arabia, Russia and more realise that rather than keep reserves in the ground for a better price in the future there will be a rush to drill to get any price today. This could well rebalance markets eventually but the collateral economic damage may be tough to bear.