Well, no – not quite yet. But, following my post the other day about the amount of fossil fuels we can’t afford to burn, I came across an interesting piece on the reasons for the current oil price crash that makes sense to me.
I should put in a disclaimer – I’m no economics whizz and I don’t really understand the oil industry even though I live near Europe’s Oil Capital (Aberdeen) but I’ve been wondering what the Saudi game was for weeks now.
I’ve known for years that you can judge the rough price of oil by looking out to sea as you drive along the A90 north of Aberdeen. If there’s not a ship in sight, the oil price is high and they’re all in harbour, cheerfully paying harbour dues, or out at work around the rigs. If it’s low, they start anchoring in Aberdeen bay with just an anchorwatch on board, avoiding the charges but also without the work.
I have never, in 20 years up here, seen so many ships sat in the bay as I saw this afternoon, on my way to drop my daughter at the train station.
The oil price has been plummetting ever since OPEC failed to agree to limit their production, which is fine for the motorist and when the heating oil bill arrived the other day we certainly had no objection at all – but it does have bad effects for other people. So why did the Saudis decide not to limit oil flow this time, for the first time, in order to protect the price of oil?
Was it a way to drive the US fracking/Canadian oil sands firms out of business so the Saudis could have a bigger share of the pie afterwards? Was it to make life difficult for the Russians? Was it to put pressure on their great rivals, Iran, who also rely heavily on oil exports for income?
Possibly all of the above – but possibly they have another ploy in mind.
Think about this. If you know that 82% of all the world’s hydrocarbons will have to be left in the ground, and you know that the world’s governments are (very, very slowly) creeping towards agreements on limiting and taxing carbon emissions, then what’s the worst thing you could have? Large unexploited oil reserves, maybe?
Better get them out, sold and convert the currency into something tangible, perhaps, before anyone starts restricting the oil market?
Is this the Saudi game? Are they pumping oil at full volume on an exceedingly slim profit margin just to get some return while they can?
If it is, I doubt they’ll ever admit it. In the meantime, it’s squeezing Russia’s profit margins, it’s bankrupting US fracking companies and it’s hammering North Sea oil companies. And maybe, just maybe, it’s the first warning that the end of oil could be coming to an economy near you, sometime in the not too distant future.