Just imagine OPEC reduces supply and nobody cares

OK, we got it by now. In an unfathomable show of splendor, OPEC has congregated in Algiers in order to show the world that it still matters and that finally, after a zillion attempts and a lot of trepidation (that’s what it felt like at least) it will reduce the volume of crude it supplies into the market.

Nobody knows the exact inner workings of this deal (not even OPEC I suppose) but the traders got what they were waiting for, biting their fingernails to smithereens in the process and as could be expected, the oil price rose. A bit at least. Some dollars. Not really splashy but it was a noticeable rise – if you watch the market with a microscope. And a beer for the long, lonely moments. Or two.

Looking at the scale of the rise I have a feeling that the oil price had stronger spikes on news that the OPEC secretary general had a bad stomach from the last dinner party.

Frankly, this whole clues searching exercise often reminds me of some old witches reading the tea leaves. Or maybe the Kremlin watchers at the time of the once mighty Soviet Union. The merest hint of a sigh in the face of one of the Soviet leaders gave rise to endless speculation on new strategic decisions that will shape the fate of the world. Even the teenager – that I have been at this time – had understood quickly what quackery this all was.

However, OPEC’s latest stunt sure can be no quackery. In the end, they will reduce supply and this will make the price rise – right? Saudis (which will most certainly need to bear the brunt of the cuts if they want them to stick) openly believe that the higher prices will compensate them for the shortfall resulting from lower volumes.

At the same time, I read in an issue of one of the best Austrian broadsheets (not really a place where one would expect outlandishly bold analysis) that the Chinese real estate bubble is hopelessly overstretched and that it must pop soon. Right under the China news feed comes a lengthy article on the troubles of Deutsche Bank (and the European banking sector as a whole with Italy transforming into a morass) and how it reminds some bank managers to the 2008 Lehman Brothers disaster. European banks are 900 billion EUROs in the red, and I am not even scratching the surface of the big red Ponzi as it unfolds along the Yangtze river.

Let’s face it. We – as a planetary economy – are far away from having mastered the economic crisis that we became aware of in 2008 – I even think that compared to what is still to come, 2008 will look like the clumsy, nervous fumbling of a teenager making out. The economic and financial world order of the last 40 years is getting ready for the biggest RESET of human history and that will not go without pain – pain that will be felt in the oil world too.

However, lets no go into that right now. There are plenty of doomsayers out there (pick your favorite).

What’s way more important – to me at the least – is what’s going to happen to the energy world and its most cherished gambling chip, the oil price. Because the oil and gas world still waits for the Goldilocks time to come back, so they can fall back into bubble inducing slumber and central planning. This is what is really at the heart of all this brouhaha. No cost reduction, no reform, no fit for 50 or below. O&G companies loved the high price area, and they want it back – please! Pretty please! With sugar on top!

O&G has ceased being a business in the entrepreneurial sense of the term a long ago. Seemingly eternal high prices have given rise to the numbers pushers, the quants, the technocrats, the system animals and squeezed those who pushed projects that would make economic sense out of the scene. Energy has become a monolith where evolution just happens on the paychecks.

I mean, has anyone looked at those CAPEX figures from some of the latest LNG projects? The sky is the limit – or it was and instead of working hard to get back to the “we can do that better, cheaper and faster” way of things, numbers just climb through any ceiling anyone ever imagined. Instead of accepting some Australian projects (and others) as financial Black Holes that will never turn a profit, we sit and wait, hope, hanker for the old high prices times to come back. And the Aussie government wants to know why they are not making a green on LNG export. They must be joking. We are so over the top that we can’t see our feet anymore.

It’s like someone who has just been given crack shots for a year, and then he tries pulling jackstraws. He will always hope for bigger sticks as fine finger movement has gone out of the window with the crack-bags. The only functional remedy will be to get off crack for long enough so controlled finger movement comes back. This will be no easy process and this is also true for O&G firms.

Getting ready for USD 50 is no replacement for “Getting back to where we belong”.

Some of you will sigh now. Yes, I have beaten this horse to death but look at all this media craze at a simple announcement of an organization that has not really shown us that it means business for years now.

While on the other side many energy pundits seem to ignore the economic calamities opening up all around us. The world will have no choice but to scale back as a whole and much of the grossly inflated numbers bubbles will have to either be slowly deflated or they will pop and judging by all the bells and whistles that go off right now, there is a lot of market re-balancing coming at us at high velocity.

When that happens, demand figures for oil will collapse to more sustainable levels (there will be a negative peak even as those things tend to cause short-term panic) and the world will wake up to ever greater stockpiles of something that nobody needs anymore. Does anyone know reliable figures on North American oil in storage, or what the Chinese tin pots are up to, or when Indian and Chinese strategic storage filling will cease, or… Where will that all send the oil price? Go figure.

What will that do to the oil world? The O&G-alternate-reality-bubbles have survived so far – most of them – in the heads of O&G executives as well as in oil ministries of oil exporting countries. O&G companies and their managers have taken some measures to mask their plight from the outside world but in reality, they just hold their breath and patch-up with short-term measures, hoping the storm blows over. If they had – instead – reformed their companies for real, they would not care what a bunch of “out-of-touch-with-reality” dudes does in Algiers. Or indeed what they might be up to later on.

They would not have any time for navel-gazing as the world needs O&G – but only if O&G can adapt and service today’s requirements. Not yesterday’s numbers-games.

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