Big Oil isn't so big any more

This essay is by Diane Moe. Diane is a freelance copywriter, Cal grad (’75), and mother of two fierce sons.

Big Oil, always a steady earner, is a solid financial investment, right? Why else would our state institutions such as CalPERS and the University of California invest so heavily in oil companies—despite the incontrovertible evidence that oil is creating climate chaos?

For decades we have feared running out of oil as our demand grew ravenously. Yet it is exactly that push/pull of supply and demand that has made Big Oil a remunerative and irresistible investment. Now, however, decreased demand for oil has driven prices down. Increased production in the face of an oil glut has driven them down even further. Since reaching a high of $115 a barrel in June 2013, oil prices have dropped 55 percent to $50 a barrel. The slide is sending investors to the exits. Shares in ExxonMobil are down 3 percent. ConocoPhillips is down 2.2 percent. And Goodrich Petroleum has slipped 8.8 percent.

Why are supply and demand so out of whack? Here are four likely reasons:

1. The US, always oil’s biggest customer, has turned the tables. America is now the largest oil producer in the world, and production is growing every day. US oil imports are at a 17-year low, as our own oil boom has significantly diminished our dependence on foreign oil.
2. US demand has been further eroded by a steady increase in alternative fuels, new energy efficiencies, and improvements in gas mileage. (According to the Washington Post, mileage of US vehicles improved from 20.8 to 25.3 miles per gallon between 2008 and 2014.)
3. In November, the Organization of the Petroleum Exporting Countries (OPEC) voted against curbing oil production despite falling prices, which sent prices tumbling further. Why? One theory is that if the oil-rich Saudis were to curb production, Iran and Russia would rush in to fill the vacuum, essentially filling the coffers of the Saudi’s enemies. As the oil glut grows, Saudi Arabia may be content to ride oil prices to the bottom. After all, with $900 billion in cash reserves, they can afford to play chicken for a good long stretch.
4. The global demand for oil has dropped precipitously due to weak economic activity in Europe and China and political instability in several African nations, as well as the Middle East. Again, low demand continues to hurt the price of oil.

What will cause these conditions to change? Will oil bounce back—or will oil stocks continue to be bad news? It seems likely that US oil production will continue to grow, and new US fuels and efficiencies will certainly continue to improve. As for the weak European and Chinese economies and global political instability, it’s anyone’s guess how long they will persist. The same goes for Saudi Arabia’s production glut.

Almost no one predicted the current crash of oil prices. Who now can predict if and when prices will stabilize? Meanwhile divestment proponents are cheering for the status quo—anything that will encourage CalPERS or UC to cut ties with Big Oil.

Photo: Flickr/Pete Markham, some rights reserved