Why investors should brace for a devastating oil shock ahead
Published: July 3, 2017 6:09 a.m. ET
Critical information for the U.S. trading day
Everett/Paramount
There will be... an oil shock?
By Shawn Langlois
Social-media editor
If Independence Day were about feting the U.S. weaning itself from foreign oil and forging a renewables future, the man behind our call of the day probably wouldn’t be sounding the alarm on a potentially devastating crisis by the end of the decade.
But it’s not. And we aren’t. And he is.
Yes, according to the latest warning from Chris Martenson of the Peak Prosperity blog, there’s an oil shock looming as early as 2018. Not just any oil shock, either. The impact of this particularly nasty spike will be severe and long-lasting, he believes.
“There will be an extremely painful oil supply shortfall sometime between 2018 and 2020,” he explains. “It’ll be highly disruptive to our over-leveraged global financial system, given how saddled it is with record debts and unfunded IOUs.”
Martenson said there is a way to avoid it — but that’s only if the world economy collapses first and drives down demand.
Not exactly a solution to get excited about.
Short of that, he believes a jump in the price of oil “will kneecap a world economy already weighted down by the highest levels of debt ever recorded.”
A driving factor behind his doomsday view, as the chart below illustrates, is what’s shaping up to be a three-year decline in investment in the oil industry — something we’ve never seen before.
“This isn’t just a slump,” Martenson says. “It’s an historic slump.”
Hence, oil discoveries have been rare, dropping to a record low in 2016 as companies continued to cut spending, according to the IEA.
“Oil is the most important substance for our economy, we’re burning more of it on a yearly basis than ever before, and we just found the lowest amount since the world economy was several times smaller than it is now,” Martenson said. “And all this is happening while we’re reducing our efforts to find more at an unprecedented rate.”
All this supports his prediction of a return to triple-digit oil prices at a time when a vulnerable global economy simply cannot afford it.
As for the stock markets, no worries. Traders just keep embracing the “BTFD” mentality that’s been working for years (more on that below).
Key market gauges
No sign of any oil shock this morning, with crude CLQ7, +1.69% aiming for eight straight days of gains. Futures on the Dow YMU7, +0.89% and S&P ESU7, +0.54% are leaning higher, while gold GCU7, -1.70% is in the red. Asia markets ADOW, -0.38% were mixed while Europe SXXP, +1.10% rallied early in its session.
The chart
If you’ve spent any time navigating the social-media trading pits, you’ve surely been regaled with the “BTFD!” anthem at some point.
When the bull market falters, or your stock takes a nasty hit, what do you do? BTFD.
Yes, buy the f’ing dip, the rally cry that’s seen a spike in usage of late, according to Garrett Hoffman. The data scientist crunched the numbers going back to 2011 and posted this illustration of the results on StockTwits.