Oil Weakening, Could Be Headed Down Coal’s Path
Tuesday, Jul 19th, 2016
A new report from the nonprofit As You Sow analyzes the state of the oil industry. And researchers found several trends that should alarm global energy investors. Oil could follow the same path as coal, they predict, albeit slowly.
If this sounds far-fetched, just remember that coal also seemed unstoppable only a few years ago. But cracks in the industry’s armor quickly turned into all-out financial turmoil. This shift led the way to the stunning bankruptcy of America’s biggest private coal company, Peabody Energy, earlier this year.
So, is oil really on the same path?
“Only a few years ago, coal was seen as being able to weather the economic changes that are now dragging it down,” said Danielle Fugere, president of As You Sow and a co-author of the report, in a press statement. “That is why investors need to understand the deepening structural risks in the oil industry, which have become more pronounced over the last decade.”
The report found that, while oil remains profitable, some of its key fundamentals are weakening. For example, while capital investments from the oil majors grew massively from 2000 to 2014, production still shrank. Profit margins are also lower, even during the era of ultra-high oil prices, due to oil resources becoming more and more difficult to exploit. And debt levels are rising while cash reserves shrink.