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What Does Cheap Oil Mean For Investors?
By Mr Ethanol | October 31, 2008
MoneyWeek:
Falling oil prices mean companies are scaling back on hard-to-exploit sites. What does that mean for oil supplies – and green energy companies? Tim Bennett reports.
What’s going on?
“Investment in alternative energy is becoming less attractive,” says Bob Parker, vice-chairman of CSFB Asset Management on Bloomberg. Many analysts expect oil majors such as BP and Shell to slash investment in “hard to exploit” locations, such as Canada’s oil-rich tar sands, says The Wall Street Journal’s Keith Johnson. 
This is despite Canada’s sands being home to “the biggest crude reserve outside Saudi Arabia”. Meanwhile, two of Canada’s biggest “tar-sands-to-crude” producers, Suncor and Petro-Canada, are already scaling back capital expenditure – most recently postponing spending on the “upgraders” that turn tar-like bitumen into high-quality crude oil.
What’s causing this sudden pullback?
Tumbling oil prices. As recently as July the price per barrel of Brent crude was setting new records – touching $147.27 – and seemed to be heading for the $200p/b (per barrel) price forecast earlier in the year by Goldman Sachs analysts. Yet the price has since crumbled to about $60 a barrel: that’s a jaw-dropping 60%. Speculators have pulled out of the market amid clear signs of rapidly disintegrating global demand, as the world economy has slowed sharply. At the current level, as Johnson puts it, “tricky new oil-production projects simply don’t make sense anymore”.
But isn’t the world running out of oil?
Topics: Cheap, Investing, Oil |
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