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The Looming Energy Shock
Due to a massive reduction in capital spending in the global oil business over 2014-2016 and continuing into 2017, the world will soon find less oil coming out of the ground beginning somewhere between 2018-2020.
Because oil is the lifeblood of today’s economy, if there’s less oil to go around, price shocks are inevitable. It’s very likely we’ll see prices climb back over $100 per barrel. Possibly well over.
The only way to avoid such a supply driven price-shock is if the world economy collapses first, dragging demand downwards.
Not exactly a great “solution” to hope for.
Pick Your Poison
This is why our view is that either
- the world economy outgrows available oil somewhere in the 2018 – 2020 timeframe, or
- the world economy collapses first, thus pushing off an oil price shock by a few years (or longer, given the severity of the collapse)
If (1) happens, the resulting oil price spike will kneecap a world economy already weighted down by the highest levels of debt ever recorded, currently totaling some 327% of GDP:
(Source)
Remember, in 2008, oil spiked to $147 a barrel. The rest is history — a massive credit crisis ensued. While there was a mountain of dodgy debt centered around subprime loans in the US, what brought Greece to its knees wasn’t US housing debt, but its own unsustainable pile of debt coupled to a 100% dependence on imported oil — which, figuratively and literally, broke the bank.
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