Traces of light
As the market is slowly bottoming out and the effects of the recent developments are becoming more known, we can start to see some of the knock-on effects of the current low oil-prices.
Some refineries are being delayed or cancelled, as well as several petrochemical ventures; the oilsands-explorers and -exploiters are sending out warnings about continued viability and the talks about deepwater exploration are becoming quieter, as no-one knows how long the current relative “low-price”-environment will last and how far the credit-crisis will further dampen demand.
Demand is going down fast in North America, with currently a reduction of 2 mm bpd; in Europe there is no growth in demand anymore and in many emerging economies demand growth is reduced. All in all the effect is that this year most probably there will be no growth in global demand, against all previous predictions.
So whilst less than half a year ago some parties were talking about shortage in the market and the need for more production and supply, driving up the prices, we now see that there is too much oil in the market and supply is being reduced in an attempt to stem the downward slide of the oil-price to prevent some of the damages caused by an oil price that is too low.
There may be many geo-political and economic reasons for this very short boom and bust cycle, with the main ones being the run-up (!) to the credit-crisis and the crisis itself, but it can already be seen that it will have far-reaching effects on the industry and the world. It is not just the cancelled and delayed projects that will cause shortage in the medium term, it is more that many countries have realised that there are certain dangers in being too dependent upon virtual money that can be withdrawn at any moment and are now seeking for more stable relationships.
So in this Update we see that after Latin America, also countries in the “Eastern” part of the planet are getting into partnerships and economic relationships that were unthinkable only a year ago, coming from the now apparent realisation that a good neighbour is better than a far (and often virtual) friend. We also see more country-to-country deals appearing, often with a barter-component, in which the exposure to “the market” is strongly reduced.
Whilst the parties that are at the core of the current crisis have raked in hundreds of billions of dollars and can look forward to snapping up assets all over the world far below reality prices, the long-term effect may not be as large and far-reaching as envisioned only a short while ago due to the “counter-developments” taking place.
Ever more countries will seek safe credits and relationships based on mutual interest and long-term stability and reliability; the financial markets will become subject to more transparency and regulation to prevent similar situations in the future and generally the industry, and the world, will become more wary of the kind of “robber-capitalism” that has reigned the world now far too long.
So although the expectation is that early next year the market may see another bank- and credit collapse, one that may dwarf what has occurred till now and again may have a strong effect on the global demand situation, we can already see the early beginnings of changes in the economic spheres that will bring more stability in the long term and will be adapted to the regional situation and the individual relationships between participating countries. This may lead to a much more diversified, multi-polar economic system, backed up by fundamentals, instead of a merely uni-polar system that is based on “greed is good”.
So whilst the real darkness may still need to appear, we can already see some traces of light appearing from a new dawn.
Alexander
Responses are always welcome at Alexander@gas-oil-power.com
