The big bad wolf awakes. He puts on a layer of sheep wool over himself and then, another. He has a big day ahead of himself. Last night while the wolf slept, his most prized possession hit the stock market at a price definitely not to his liking. He did not lose sleep over it though since he knows who the real enemy is. It’s those Russians who over wear animal fur and drink way too much vodka. Well, isn’t that haram?!
The wolf must meet with his cartel comrades and together they will decide how to handle this new turn of events. Could it possibly bet those Russian messing with them? They were having a price war after all but OPECis not scared. They have faced worse than this together.
The big bad wolf then has to pretend to care for the wellbeing of his employees at the headquarters of Aramco. When speaking with a Reservoir Engineer working at Aramco, he expressed how unsettled he felt at seeing the oil price go below zero having spent the sleepless night continuously checking the movement of the price and reliving the traumas of the previous downward plunge of oil in Alberta, Canada where he was previously working. What else can be said about the most cyclical industry?
On a macro level, the geopolitics of the Middle East rests firmly on the price wars and regular wars surrounding the black gold. On a micro level, people’s lives get turned upside down. Some lose their jobs, some have their homes burnt to the ground, some are forced to separate from their families and flee. None is easy. However, the chaos of the oil and gas industry does not stop in the Middle East or Russia, but goes as far west as western Canada. Alberta has been the powerhouse of the energy industry in Canada enjoying a boom for many years until it busted in 2016 and it has not been the same since.
The current landscape of the oil and gas industry will see the big fish eating the little fish. The current price of oil will make it extremely difficult for small companies to survive the harsh realities of the industry in western Canada. “The energy industry in Western Canada will be dead for the next two to three years due to the big inventory that was produced and stored from the past few years, especially during the first five months of 2020 after the demand of oil dropped due to the Coronavirus” Bashar Hussein, CEO of VistaProjects, noted. The lack of pipeline infrastructure makes it difficult for Alberta to sell and transport its stored supplies as there is a lack of support from the Canadian federal government which will stall the growth leaving Canada fragmented. Given that Eastern Canada (ahem Quebec ahem)is still importing oil from Saudi Arabia, Alberta is forced to sell its oil at discounted prices to the USA.
Every industry has its cycles and every commodity as well. The oil and gas industry is huge and while the technological innovations have incrementally improved over time, the industry is still mainly governed by geopolitics. Countries like Saudi Arabia and Russia can afford to play price wars as their oil companies are state owned leaving the privatized industries to be at the whims of the big players and the global supply/demand curves. The paradigm shift of the industry for the next 5-10 years is predicted to spike again in 2025 as there has been consistently low investments in the industry. Oil and gas is still the number one energy source used on earth and it will be a while before it can be efficiently replaced by any other high tech resource. The longevity of the industry will force the energy experts to drive bigger and better innovations as to the survive the low curves while also investing in ways to improve the renewable energy industry. In addition, the current low cycle will depend greatly on how the world readjusts to the coronavirus shift but in the meantime, we just have to sit back and watch as Saudi Arabia and Russia fight it out to be the bigger badder wolf of the oil and gas industry.
