Indicators show oil industry in danger of ‘weakening’, says report
Several indicators are already showing signs of the oil industry ‘weakening’ if major oil companies continue to operate as though in a business-as-usual environment, according to a report released by the nonprofit As You Sow. Some of the indicators include: Higher extraction costs, international supply competition, falling profit margins, mounting debt, shrinking cash, competing technologies, and regulatory risk.
Near the height of the US coal consumption in 2011, As You Sow published a report highlighting the growing financial risks for investors with stakes in the US coal industry, correctly predicting the structural basis for what has become a permanent decline of that once mighty industry.
The new As You Sow report, Unconventional Risks: The Growing Uncertainty of Oil Investments, concludes: “History is replete with companies that failed to recognize the inevitability of change in their markets. Once dominant players in world markets, oil majors now share problems found at many risky companies, including increasing cost structures, deteriorating financial fundamentals, changing demand for their product, and management that has failed to address key areas of risk.”
Danielle Fugere, As You Sow president, chief counsel and report co-author said: “We are in a period of accelerating change, which will fundamentally affect the oil industry. Investors need to understand the deepening structural risks in the oil industry, which have become more pronounced over the last decade. The future is not set in stone for oil companies, but their failure to acknowledge signs of change and plan appropriate action could be disastrous.”
Amelia Timbers, As You Sow Energy Program Manager and report co-author said: “The oil majors are caught in a negative feedback loop. Every time oil prices are high enough to allow the majors to break even, high oil prices simultaneously create market conditions that accelerate long-term oil demand destruction, ironically reducing the frequency and extent of oil price rebounds in the future.”