A soundtrack for an oil crash

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Tim Haïdar

"Every bad situation is a blues song waiting to happen." Amy Winehouse (1983 – 2011)

It seems that not a week goes past without fresh news of a rout in the oil markets. The price of Brent crude has been slashed by almost $10 a month since September 2014, dipping below $62 on Friday - a level last seen in May 2009. And the tumble does not look likely to end at $60.

On Sunday, Suhail Al-Mazrouei, the energy minister for the United Arab Emirates, said that OPEC would not curtail its crude output even if the price hit $40 a barrel, a figure last seen in 2008. Coincidentally, the last time oil was so low pre-dates the hydraulic fracturing revolution in the USA, whose shale plays only become economically-viable upwards of $50 per barrel.

The unconventional arena is not the only section of the hydrocarbons industry to be feeling the pinch. In the North Sea, consultancy Wood MacKenzie has stated that as much as $87 billion of oil and gas projects face the chopping block under sustained pressure from lower oil prices. More than 20 of the upcoming 32 developments on the UK Continental Shelf will only turn a profit with oil beyond the $60 dollar mark.

Decreased spending by operating companies and the seemingly slim prospect of an uptick in 2015 has been a hammer blow for service providers.

British EPC company Petrofac has borne the brunt of this, with $1.56 billion wiped off its stock market valuation. Both Italy’s Saipem and Swiss-based Transocean have also taken a tumble, their shares depreciating by 4.3 and 4.7 per cent respectively since last week.

And all the while, the sanction-crippled Russian Bear waits on licking its wounds. Depletion of conventional resources and preclusion from using embargoed Western technology to tap more elusive reserves, has led to a haemorrhaging rouble and the possibility of a deep recession if oil prices do not return to $85 a barrel in 2015.

Can Bears play the harmonica?....