me4 Anyone looking to oil as a long-term hold in 2017 needs to examine the realities more closely. The glut can no longer be denied – while the rise of electric vehicle power spells big trouble for Arabs, Islam, stock markets, frackers and the Pentagon.


Some so-called “market movements” on the bourses of the world are so clearly idiotic, one has to just keep on bashing away at the issue until some of the innocents finally wake up. By far the most brazenly obvious is the continuing attempt to keep the price of oil high – while at the same time pretending that “the world is finally returning to growth after the shock of 2008”. This process is, respectively, mendacious and complete tosh.

Fifteen months ago, I posted an analysis showing that there is an oversupply problem either side of the refining process. 

 

At that time I wrote:

‘It is certainly true to say that refined oil production has been barely affected, but pull-through is no more than an indicator – especially in an environment where very soon stock build will put storage infrastructure under pressure and could see floating storage become profitable again.’

This is precisely what has happened. Yesterday, Reuters reported as follows:

oilglutsnipReut

The article merits a full read because it paints – at last – a real picture of what’s going on….but without getting into the serious ramifications. And trust me, there is no way the élites want too many people to catch on to what’s coming. The reasons for this are twofold.

First, the oil business simply isn’t viable below certain price levels. It might seem at first sight that oil at a “real” price around $25 would massively stimulate economies based purely on the price saving. But it doesn’t work like that: just as cheap money can’t encourage borrowing if the business confidence isn’t there, so too traders won’t buy refined oil if the orders aren’t there. It costs oilcos (after taxes and other costs are factored in) a lot more than $25 to get crude to the refinery. Even at $120 a barrel, you may have noticed the dearth of new exploration over the last two decades. Such things are becoming unaffordable.

Second, as the Buddhists and physicists say, “Everything is connected”. And the line between commodity prices and stock market levels is about as direct as it gets: oil is the most important commodity on Earth for business, and the oilcos are blue chips when it comes to institutional investment. If demand is clearly shown to be slowing, that means real economies are slowing, which means (post QE) profits will shrink, and therefore stocks will fall.

This is not the kind of news anyone from the Fed to the Saudi royal family via Wall Street and the fracking sector want out there.

Things would be hairy enough for Texas, the Arabs and Moscow if nothing else was appearing in the Room. But there is one enormous bull-elephant there growing more difficult to ignore with every day.

The electric vehicle revolution is, finally, close to that point where the internal combustion engine’s obsolescence can no longer be denied. As 51% of all crude output on Earth winds up as petrol for a motor vehicle tank, that is going to be a catastrophic blow to the oilcos and sovereign producers.

Between 2007 and 2014, US vehicles’ use of petroleum dropped 10%. That loss of transport market share for petrol has been accelerating since. Tesla cars expect to become mass market by 2019: if they don’t manage it, someone else will.

The reason I can sound so confident about that is the classic one for new market breakthroughs: the start of massive investment in an electricity distribution infrastructure to produce refuelling networks to rival those of petrol brands. Last February, Shell accepted this inevitability, announcing a programme to install electric rechargers in all its stations over the next few years.

EDF leads the way in this revolution, having opened hundreds of charging centres in Canada and the US, as well as introducing a world-beating fast-charger that makes it as easy to fill up a car battery as it is to top up a tank. The UK company says it is “putting electric car charging infrastructure at the centre of its development plans”. And the motor manufacturers themselves are finally joining forces to produce more cars with faster charge mechanisms: last November BMW, Mercedes, Ford and VW/Audi formed an investment consortium to that end.

Now, there is no way that an energy business with enormous overhead costs can afford to lose half its business in a decade. And there is little chance that already nervous stock markets can finally become aware of the global demand collapse/electric car double-whammy without sparking a sell-off right at the heart of bourse investing.

But business, banking and oil élites are not the only powerful players with a vested interest in slowing down that realisation. The American State Department and its military wing The Pentagon are staring down both barrels of the starting gun for geopolitical change on a hitherto unknown scale.

For with no Middle East oil to secure – and a Russian bogey-man in financial straits with the decline in oil – the US Alternative State is going to run out of enemies very quickly. All of which might help explain the sudden stepping-up of pressure on North Korea.

Nearer to home, in the face of these stark energy realities, I wonder what the new set of rationales for fracking in the UK will be once Big Sister is returned to power. Here, surely, is a genuine conservationist issue worth fighting about.

 


Previously at The Slog: Enough warriors already