We are just human beings. We are vulnerable by uneasy expectations and defenseless in the face of bad news. These days news from the markets is extremely bad. Even those, who never ever were interested in oil production and Chinese GDP, now are aware of crude oil prices fallen below $30 per barrel and melted power of the second world economy, the hard-working hands of AmeriChina.
How comes that we became so tender to the liquid hydrocarbons?
In 1684 in Britain three people have found a way to extract oil from “a sort of a stone”, nevertheless an industrial extraction has originated in France in 1838. Almost 60 years later the oil shale industry separated from the coal mining. Her Majesty’s Naval Service began using oil before the First World War, thanks to William Churchill and it was him, who initiated Anglo-Persian Oil Company. Thus the oil century got started. However, the painful dependency on the Middle East oil was evolved in the final third of the XX century, when OPEC has been established by farseeing Saudi princes.
Pay me for depletion
On Monday a contract for the North Dakota oil was signed up with negative price. The owner preferred to deplete stocks paying a buyer. The glut rules the markets. Riyadh is pumping furiously, while Tehran is celebrating the comeback to the global trading. Saudi Arabia produced more than 10.25 million barrels a day; the barrel costs $9. Russia calculated expenses and claimed $8 per barrel as the cost of Urals extraction. Brent as a benchmark is more vulnerable to Iranian oil comeback. On Monday, Brent touched $28.05, but found the power to rebound above $29. Anyway stocks are overwhelmed. With the price per barrel falling down, with the world anxious to shift away from oil to an alternative energy sources, the value of natural oil fields is sliding down. The depreciation of the fields causes Saudis to pump and Americans to export crude oil. What do you suppose to do with the asset, which is losing attraction?
The bad news is good enough
The market is digesting China GDP in the 4th quarter of 2015. The GDP at 6.8% matches the analyst expectations. So the bad news is not terrifying. The trading world needs to take a breath and calm down. Klaus Schwab, executive chairman of the Davos World Economic Forum, offers policy makers to look at the situation and coordinate the efforts to transfer into the new reality. What is new under the Moon in 2016? Our incapability to grasp lines and borders between digital, mental and physical spheres determines problems in the global economy. We are just the same, most of us. Our mentality is restricted by the speed of data processing and passé stereotypes about profitable / unprofitable. We believe in “Rigs bring the profit”, “Oil production feeds a state budget”. We overreact on bad feelings and panic together with the crowd without any reason from the physical world. The panic spreads immediately thanks to digital communication. Slow down, take a breath, switch off you phone, think twice. The oil will rebound up to $40 per barrel, Bloomberg said, but only in April.
The most important consequence of the worst start of 2016 – we are still afloat even with the crude below $30!