Demand Drops But Debt Increases For Big Oil

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Despite regional conflicts and unrest that has taken 4% of the world’s oil production offline, weak demand has kept prices relatively steady. This is good news for consumers, but bad news for oil companies, many of which have taken on tons of deb.

The International Energy Agency, or IEA, has scaled back its yearly production expectations by some 180,000 barrels per day, based largely on weak demand from the U.S. and European markets. Even China, which has been a big buyer of oil over recent years, is curbing its appetite for fossil fuels as it looks to curb carbon emissions by promoting generous electric vehicle incentives. Meanwhile more-developed Western economies are getting used to more efficient vehicles, which are going farther and farther on a single gallon of gas. In the U.S. for example, the average MPG of new cars is over 25 MPG, up from just 20.8 MPG in 2008.

This lowered demand means prices aren’t inflating like they did back in 2008, even though traditional oil-producing nations like Libya and Nigeria has seen production slowed to a trickle. Meanwhile Russia and Iran’s oil production has been hit by Western sanctions for not being good global citizens, which a few years ago would have contributed to skyrocketing oil prices. But just go to just about any gas station in America, and you’ll see that prices are more-or-less par for the course.

None of this is good news for oil companies, which have invested heavily into finding new sources of oil, often in far off, remote areas. Oil companies need demand, and hence prices, to rise in order to fund this exploration, as well as production methods like wringing oil from the Canadian tar sands, which is a costly process requiring huge upfront costs. The IEA estimates that the 127 oil and gas companies it analyzed have taken on some $106 billion of additional debt, while selling off some $73 billion, reports The Telegraph.

With global worldwide oil revenue stagnating at around $568 billion, this means oil companies are approaching dangerous levels of debt, and the future isn’t looking much better as more efficient hybrid and gasless electric and hydrogen cars gain in popularity. But there’s also the increased likelihood that oil prices could suddenly skyrocket, as a lack of exploration combined with increased regional conflicts could mean that suddenly, there’s not enough oil to go around.

It also doesn’t mean the era of Big Oil is over. But the days of easy oil, and easy money, appear to be at an end…and green energy might finally start to gain an upper hand on an aging industry from another era.

Christopher DeMorro

A writer and gearhead who loves all things automotive, from hybrids to HEMIs, can be found wrenching or writing- or else, he's running, because he's one of those crazy people who gets enjoyment from running insane distances.