The World Is Still Producing More Oil Than It Needs
The elephant in the room is that the current crisis has revealed how dependent some producers are on high prices for oil. Basically the current crisis is a double crisis of first Russia deciding to stop voluntarily limiting their oil production to keep the prices artificially high so the US producers don&#x27;t go bankrupt. And then the demand collapsed due to the lockdown. So over supply and demand collapse happened nearly at the same time.<p>What this means for producers in the US, that are increasingly relying on more expensive sources of oil is that Russia can collapse the prices to below their break even point any time they want. Same for the Saudi&#x27;s. That used to be the nuclear option when Opec controlled the prices. This is also where the word oligarchy comes from. Once oligarchies stop fixing prices they are suddenly competing for cost per barrel. And the simple truth is that when it comes to fracking, the cost is too high.<p>What that means in turn is that oil related investments suddenly got a lot more risky than they already were. All the easy sources have long been invested in and the remaining sources are increasingly difficult to exploit. Institutional investors have already been divesting away from oil for a few years. Price fluctuations like we&#x27;ve seen in the past decade ranging from negative to above 100$ per barrel means it&#x27;s a highly risky investment as you simply can&#x27;t know if you get back your money.<p>So, shutting down right now may get a permanent nature for a lot of companies as they&#x27;ll have a hard time getting investors to back bringing their plants online. The longer this lasts, the worse it gets. I expect a lot of recent investments to be written off completely. Also things like the Keystone pipeline are probably dead in the water as it is debatable whether the thing will ever be profitable.<p>IMHO that&#x27;s actually good news and will force people to look at alternative technologies and accelerate the agenda on e.g. switching to electrical vehicles, battery technology, alternative energy etc.