It may be no coincidence that one of my favourite books is called “The Catastrophist” by Ronan Bennet. A catastrophist doesn’t just see the glass half-empty, but empty and broken with shards spelling impending pain and blood… I think this general world-view probably stood me in good stead as a bank-engineer assessing debt deals. What could possibly go wrong? well according to me, a lot, and with hindsight its amazing we did any deals at all.
The first problem with oil prices is that they are never stable – so the “lower forever” banking tag line is about as good as “this time it’s different’, which has never worked as an investment thesis. The second problem is that low oil prices trash our industry. The third problem is that high oil prices trash our industry. And of course the forth problem is that low prices lead to high oil prices (see problem 1, above). This post is (or will be after a brief intermission) about high oil prices. Be careful what you wish for.
I wonder whether this is due to my age, or rather my “vintage”, as a child of the 1970s. Britain was bleak and broken, in post-industrial decline, I was not directly affected, but in the extreme opposite of Milan Kundera’s classic “The Uunberable Lighness of Being“, this period was almost designed to traumatize – the unbearable heaviness of existence was brain fodder. I recall school lessons about the impending Ice Age (ironic given today’s consensus view, but actually reasonable when looking at natural cyclicity), the end of jobs (again a certain irony today), an essay project on the “last blade of grass left”, not to mention fun “public information” films (“PIFs”) and ads that ranged from children dying on farms (Apache), on railways “The Finishing Line” in gory bloody detail, and of course the “put you hands over your head and kiss your a** goodbye” in the “Protect and Survive” cold-war nuclear apocalyptic vision where clever use of string, canned food and a good attitude would see you through. For some reason it was always Sheffield that got fried – I never really worked that one out.
As the cold war receded we had been through huge industrial unrest as the fabric of post-war society changed, high inflation and interest rates (remember those?), race riots (“Is Brixton Burning?“), the nuclear Armageddon threat, and just when you thought it couldn’t get much worse, our generation’s “coming-of-age movie” was the 2001-Space Odyssey remake (ie another PIF) with a large obelisk emblazoned with “AIDS” and a blunt message about sex and certain death. Oh to be a Millennial, where the main concern is FOMO, and not enough likes on Instagram.
So what does this have to do with the oil price? Well, it’s just my view, and I thought it best to frame it with some background on my “catastrophist” world view since it gets quite bleak…Continue reading “Higher oil prices and what happens next”