Wall Street Daily
Karim Rahemtulla, Chief Resource Analyst
Conventional wisdom would say that everyone in the oil patch is taking a mighty beating right now.
But some are hurting much more than others…
Indeed, while oil company shares have been plummeting, the eventual consequences of this engineered collapse will come home to roost at the doorstep of the perpetrators: OPEC.
The reason is simple…
While oil companies can be fairly nimble when problems arise, most countries don’t have a lot of flexibility. So they’re at risk of completely melting down.
And one country has already called for production to be cut, much earlier than anyone expected! Is this the beginning of an uprising?
Dissent Among the Ranks
Oil and gas companies have already begun to reduce spending going forward. Many are slashing budgets by double-digit percentages, which will allow them some maneuverability.
That’s because the key to surviving the energy crash, at least for the short term, is cash flow.
Now, if oil prices stay at or below current levels for more than a year or so, the picture could change dramatically with bankruptcy scenarios throughout the oil patch. You can only live on cash flow for so long. Earnings are what matter in the long run.
For countries, cash flow is also critical. Most OPEC countries run highly subsidized economies, and those subsidies are made possible entirely by revenue from energy sales.
Well, that revenue has just been cut in half. Shutting down wells is just not an option when there are hungry mouths to feed. And when those beneficiaries of the oil welfare state start thinking revolution… well, t
