Haley Zaremba, writing for Oilprice.com, sketches a scenario whereby oil would once again be selling for $100 a barrel. Dream on. All long-time oil industry watchers know is a boom-bust-boom cycle, so after the biggest bust in oil price history, of course you expect oil to bounce back to giddy, profitable highs. Only you’ve got competition now, and you’ll be priced out of the market. The transition to renewable energy sources, already cheaper than oil before the bust, will only accelerate.
Even if demand for oil and gas pick up after the coronavirus pandemic abates and supply is cut by OPEC+ agreements, voluntary cost-cutting “shut-ins”, and by bankruptcies, millions of city dwellers around the world have seen their skies clear and been able to venture outside again without a mask. Many will join the millions of the young who’ve been demanding that politicians act on climate change to ensure them a future. Public opinion is turning irrevocably against fossil fuels. The market and government actions will together finally force the fossil fuel industry to take its collective head out of the sand, see that it’s hegemony is ending, and that the oil industry will never go back to business as usual.
In fact, it will struggle to remain viable. Its stock prices are already down, it’s percentage of the S&P index far below its high. The industry’s balance sheets carry billions of dollars worth of discovered but as yet unexploited oil reserves. The value of these assets is falling as demand sags and price competition from renewables makes more of them unprofitable to recover. At some point the oil majors will have to write off many of these assets, which will further depress their share prices. Several of the companies have cut their capital expenditure budgets (capex) for this year by 20-30%, a tacit acknowledgement that it makes little sense to invest in boosting production capacity under existing and expected conditions. Jim Cramer, a leading TV market guru, has declared oil dead and advised his viewers to avoid the sector.
So for Oilprice.com to predict $100 oil soon is delusional. It’s unlikely to ever come close to that price again.