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The long shadow of a black swan

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Very interesting piece by Steven Keays.


Buyers of hope, beware.  Last week saw two news items in the National Post associated with the continuing blight of the energy industry.  On 16 September, the Post reported the approval of three oilsands projects by the Alberta government (“Alberta approves three oilsands projects worth potential $4 billion in investments”, by Ian Bickis, The Canadian Press).  The day before, a piece byAmbrose Evans-Pritchard, of the Telegraph in London (“When oil turns it will be with such lightning speed that it could upend the market again”), shone a light on the precarious state of the world’s oil supply.  “Annual investment in oil and gas projects has crashed from US$780 billion to US$450 billion over the last two years in an unprecedented collapse, and there is no sign yet of a recovery next year.”  What’s more, wrote Ms Evans-Pritchard, “oil discoveries have fallen to the lowest level since 1952 and the global economy is becoming dangerously reliant on crude supply from political hot spots, the world’s energy watchdog has warned.  The International Energy Agency said wells are depleting at an average rate of 9 per cent annually. Drillers are not finding enough oil to replace these barrels, preparing the ground for an oil price spike and raising serious questions about energy security.”  The message is eerily reminiscent of the warnings that I gave in my previous posts.  The timing of the article hints at the growing realization by the investment community that the days of cheap oil may be coming to an end sooner than anyone anticipates.  My prediction in this case is that, once this realization is grasped widely by shareholders and traders, panic will set in and unleash a brutal run on the stock price of producers who will appear being the eight ball.  I further predict that this panic will lead to the usual scramble for capex projects to “drill baby drill” far and wide.  Which will only exacerbate the crisis.


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