As I’ve reported, the climate agreement reached in Paris may lead to a permanent collapse in oil prices as countries compete to sell glutted production in the face of diminishing demand. Conventional Wall Street wisdom says that Saudi Arabia is pumping oil at high levels in a bid to drive other producers from the market and regain market share. However, this interpretation is at best only part of the story due to the fact that so much USA and other production has recently come on line and will continue to produce as much oil as possible to cover repayment of financing used to drill new wells. Saudi Arabia has long made clear that they have enough reserves to pump oil for decades, and that country appears to be undertaking a long term strategy to squeeze as much revenue as possible from their store before all underground oil becomes a stranded asset. A new wrinkle is that China has announced they will not reduce domestic gasoline pricing any further in a bid to reduce the growth in vehicle emissions. This could be a major obstacle to any recovery of oil prices in the short and long term.
It appears likely, therefore, that oil prices will continue to fall for the foreseeable future, and if worldwide demand continues to fall due to environmental policies like those instituted by China, there are bleak prospects for an oil price recovery. The flood of bad news for oil continues today in the news that Congress will renew tax breaks for the installation of rooftop solar, wind and other renewable energy projects. Despite the surly rhetoric of conservatives and the apparent attempt at a new “inquisition” directed against climate scientists by Science, Space, and Technology Subcommittee on Energy Chair Lamar Smith, most politicians can clearly see the writing on the wall. Last one to leave turn off the oil well pump!