Unless OPEC can pull some “shock and awe” out of its market-fixing arsenal, crude oil is headed back below US$40 per barrel, according to a new assessment by investment bankers Goldman Sachs. The analysis lends weight to another, in New Scientist, that contemplates an oil-led global financial collapse more dramatic than 2008 just six years from now.
Goldman cut its three-month forecast for West Texas Intermediate crude from US$55 to $47.50 a barrel last month. It now says that could sink below $40 unless the Organization of Petroleum Exporting Countries does something unexpected, beyond its current leaky program of production cuts, Bloomberg News reports. The New York bank urged OPEC members to institute sharp new cuts to their crude output, “with little public announcement, in order to jolt investors.”
So far, though, crude oil markets are resisting any upward trend—or any floor on falling prices. Bloomberg observes that Saudi Arabia has been trying to reduce crude inventories in the United States—one weight on global prices—by cutting U.S.-bound shipments of its own crude. But even as U.S. shale producers pick up the slack, “OPEC’s deal to reduce excess crude stockpiles [is starting] to show signs of unraveling elsewhere,” even as state-owned China Petroleum and Chemical Corporation, the globe’s largest oil refiner and one of its biggest buyers of imported crude, scales back its purchases of foreign crude by the equivalent of 3% of the nation’s imports.
Oil prices did tick up yesterday, on another Saudi promise of further production cuts in the so-far futile effort to support prices.
The persistent softness of oil prices is just one feature of the industry’s financial landscape that alarms New Scientist. The article considers other factors, such as how much money banks are lending to oil companies to add to inventories that already exceed what can be burned with some hope of restabilizing the climate, and how much insurers stand to lose to climate-driven weather losses in the years ahead.
In a related folly, as the magazine sees it, “the financial industry—almost certainly including your bank and pension fund—is betting heavily on things carrying on as they are now. They are investing in companies trying to find yet more oil and gas, in car firms with no plans to switch to electric vehicles, in real estate threatened by rising seas, and more.”
The trouble with that picture is that things will not carry on as they are. Under any circumstances, “the low-carbon transition will lead to the reallocation of a significant fraction of the world’s capital,” the magazine writes. “If this happens suddenly, it could lead to ‘a rapid, system-wide adjustment that threatens financial stability,’” it adds, citing the Bank of England, where Governor Mark Carney has led efforts to force fossil producers and other companies to disclose their vulnerability to climate risk.
New Scientist foresees the trends coming to a head in “the great crash of 2023,” triggered by a post-Trump president “signing emergency measures to slash carbon emissions.” Rippling through the connected fibres of the global investment, banking, insurance, and real estate industries, the envisioned reactions “made the 2007 financial crisis look like a blip. Investors started panic-selling stocks in fossil fuel companies. Trillions were wiped from the stock markets within days—and hundreds of millions of people around the world lost their pensions.”