Oil production companies are about as far from being part of the self-proclaimed “woke” set as you could imagine. A dinosaur industry with its head so far in the sand (to mix my metaphors) that it can’t even see that most of its assets will stay in the ground and be worthless. Woke people know that we will be 100% renewable by the middle of next month.

This week may not change public perception, but its a pretty big wake up call to all wokeists everywhere, if they bothered looking.

I normally write too much, so I’ll keep this short(ish)

  1. June-July: Multiple agressions against tankers in the Strait of Hormuz cause a giant yawn.
  2. 9th September: Saudi Arabia announces its intention to start uranium enrichment (for peaceful power purposes)
  3. 10th September: Trump fires the very hawkish anti-Iran John Bolton
  4. 14th September: Iran or less likely, Iran-backed Houthi rebels take out half of Saudi production
  5. 15th September: The BBC news app has a dog rescue in Cumbria as 4th most viewed news story in the UK, hot on the heels of Brexit, cricket (which I acknowledge was great this summer) and a clown story….

Its only 5%

I can only assume that this total disinterest is a compliment to the industry – supply is so taken for granted that even a massive event such as this is ignored. To be fair the media have been busy, as any good (newsworthy) event is, but for the general public it is a non-event. And why not? well after all we are talking about only 5% of world oil supply. If the supply of cigarettes dropped 5% it would not be newsworthy

recently wrote suggesting that the usual view of energy markets “Complacency or Panic”, should be modified to be “Disdain, Complacency or Panic”. And that whilst many many factors influence the oil price, the key is the perception of excess supply (or not). When the prevailing view is of oversupply complacency sets in; and we have seen headlines all about decline in demand growth, US-China trade-wars, softening of US position wrt Iran etc, then a lot of geopolitics can be shrugged off.

Five million bbls/day is a big chunk, but may be compensated for by emergency releases from strategic reserves around the world, not the least from Saudi itself. But in a world that is +/- 1 million bbls/d in the supply/demand balance, five is a very big number.

Oil prices will react, probably over-react, but the greatest damage now is to the perception of supply invulnerability and inevitability. What happens next may well define the next decade. A quick repair and concerted international pressure on Iran (if it be they!) to back down, maybe in exchange for easing of sanctions and renewed Iranian oil coming back into the supply side, and we will see low oil prices and a consequent dividend to the world economy. Conversely, escalation and possible additional disruption will cause prices to spike hard. US shale won’t be able to plug the gap and we will see the imminent and also fairly inevitable recession be triggered, once again by high oil prices.

The tragedy of the commons (again)

Money mangers will bemoan their losses and blame the macro as assets in all sectors crash. These are the same managers of money who have chosen to passively not invest, or actively divest in fossil fuels. The problem is that for individuals it makes sense to invest in other sectors; (1) because energy has made awful returns over more than a decade and (2) because “stakeholders” direct them so. The bigger problem is that if no-one is investing in energy (or at least the 85% that powers the modern world), then that energy underpinning becomes weak and fragile, which in turn undermines all the other investments. Energy is the economy.

So fragile that a handful of weaponized drones may cause the next global recession.