Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

13 Threats to Oil Companies

Oil companies are in a lot more trouble than you might think. The available data shows that oil producers have suffered massive and income losses over the past few years.

A typical example is Chevron (NYSE: CVX) which saw its revenues fall by nearly $100 billion in three years. Back in June 2014, Chevron reported $225.86 billion in revenues that number fell to $175.68 billion in June 2015; bottomed out at $116.40 billion in June 2016, and rose again to $129.54 billion in June 30, 2016.

More disturbing is the net income which fell from $20.06 billion in June 2014 to $5.83 billion three years later. Basically Chevron lost three quarters of its’ net income in three years. This year’s $5.83 billion income is far better than the -$746 million loss the company reported in June 2016.

Chevron was doing well compared to Anadarko Petroleum (NYSE: APC) which reported a -$2.078 billion loss on June 30, 2017. Although Anadarko’s revenues have begun to recover, it reported $10.76 billion in revenues on June 30, 2017. That’s a $3.43 billion increase over June 2016 when it reported revenues of $7.33 billion.

These figures show us that oil companies are still capable of making a lot of money, and of sudden revenue gains. Yet they can also lose a lot of money fast, as Anadarko demonstrates. As recently as June 2014, it reported revenues of $17.47 billion.

Oil producers can still make a lot of money but they can also suffer vast losses fast. This means it is a good idea to see what the threats to oil producers’ future are so the next losses will not catch investors by surprise.

13 Huge Threats to Oil Companies’ Future

  1. Electric cars. This technology is advancing far faster than the skeptics claimed. Almost every major automaker is planning to bring out new electric models in the near future and one, Volvo has even announced plans to go all electric. Better electric car technology is on the horizon in the form of faster charging and safer solid state batteries. Toyota plans to bring out a car running on them in 2021. If all that was not enough Tesla is planning to put the Model 3 into full production by the end of this year.


  1. Electric trucks. One safe assumption of oil investors that diesel-powered semi-tractors will dominate over the road freight transport for the foreseeable future suffered a major blow this year. Elon Musk unveiled plans for an electric-powered Tesla semi and the heavy truck maker PACCAR (NYSE: PCAR) which owns Kenworth and Mack, announced plans for its own all-electric semi.

  1. Air Pollution. Europe’s increasingly dirty air has driven the governments of France and the United Kingdom to ban the sale of internal combustion engine vehicles by 2050. Not to be outdone German Chancellor Angela Merkel revealed plans to ban “clean diesel” cars in the future.


  1. Major oil producers. The days when OPEC could be relied upon to jack up oil prices to enrich such countries’ governments are over. Countries like Saudi Arabia, Libya and Iran are now dumping vast amounts of oil on the market to generate lots of cash fast. To make matters worse, non-OPEC states like Russia and the United States are free to dump all the oil they want on the market.

  1. U.S. Oil Production. The United States has gone in the past years from an oil importer to a major exporter. This is problematic because oil is a side line business for the U.S. Its’ government has little incentive to limit production, or exports. Indeed it makes strategic sense for America to dump as much cheap oil as possible on the market to undermine OPEC and potential enemies such as Russia.


  1. Hyperloop. This is a theoretical threat that might become reality real soon. The Hyperloop is a high-speed electric transportation system that might take the place of petroleum powered contrivances such as autos, trucks, airplanes, ships and trains on many routes. If it were successful, Hyperloop would greatly reduce the demand for oil.

  1. Fear of oil dependence. Another reason why countries; like China, Norway and India, want to go to all electric vehicles is to get away from oil and the strategic entanglements it leads to. The debacle of the US war in Iraq demonstrates the dangers of trying to ensure oil supplies by force. Just the thought of “war for oil” makes electric vehicles far more attractive.


  1. Global Warming. Fear of this is driving efforts to ban electric vehicles. Even if it’s not real, almost all of the world’s opinion leaders believe in it, which means it will influence decision making. Right now all it would take to transform skeptics like President Donald J. Trump into true climate change believers is one disastrous flood in the United States.


  1. Changing lifestyles. Some polls indicate that Americans are driving less. A pattern that’s sure to be repeated elsewhere in the world. Major threats to oil companies include cities in which a large percentage of the population relies on Uber instead of their own cars. That means fewer vehicles, less oil usage and lower profits.

  1. Increased oil production. Better technology has led to increased oil production and an oil glut rather than the Peak oil collapse in production most of us were expecting. There’s now simply too much oil out there which depresses prices and lowers demand.


  1. Hot Fusion. Progress on this technology; which might replace oil as a fuel source for ships and generators, is advancing much faster than many people realize. Back in 2015, MIT Nuclear Science and Engineering Professor Dennis Whyte predicted that a fusion reactor will be built with off the shelf technology by 2025. That prediction is coming true; Alphabet (NASDAQ: GOOGL) is partnering with Tri Alpha Energy a $500 million unicorn backed Microsoft co-founder Paul Allen to develop the Optometrist algorithm designed to control fusion reactors, The Guardian reported. That’s just one of many fusion experiments taking place all over the world.

  1. Solar Power. Tesla Power’s (NASDAQ: TSLA) Solar City subsidiary built a 13 megawatt (13 million watt) solar farm that will reduce the Hawaiian island of Kauai’s diesel fuel usage by 1.6 million gallons a year, The Verge reported. That’s a hit to some oil company’s profits, and it is likely to be repeated all over the world.


  1. Cold Fusion. This technology which is supposed to create a fusion reaction by chemistry was supposedly debunked 30 years ago. Yet it has resurfaced in recent years with garage inventors like Andrea Rossi and Robert Godes claiming to be close to commercialization. If it worked Cold Fusion would be a major menace to oil companies by making it possible to power an automobile with a fusion device. There have even been unconfirmed rumors that Bill Gates has been investing in cold fusion or Low Energy Nuclear Reaction Technology (LENR) research.


These developments do not mean that oil is going away. They simply mean that the oil business is changing beyond recognition. The most likely outcome will be that petroleum production will become like other commodity based businesses such as iron ore. That is low profit margins and a few large producers dominating the market.

Expect to see a vast amount of consolidation and centralization in oil in the near future. This means that a lot less money will be made and many investors will abandon oil stocks completely in the years ahead.