Very good article on the oil prices and psychology of the markets. Every boom and bust cycle I have experienced follow the human emotion cycle that he describes. The time to sell is when everyone is euphoric and believes it is going to last forever, the time to buy is when everyone is depressed and has given up hope.
We are approaching the point of hopelessness in the oil and gas price cycle. After the year end financials are complete, the reality of the bust will be fully evident and acquisition opportunities will be plentiful. The deck of players will reshuffle, the ones that managed the boom properly and have cash will clean up the the remnants of the players who did not. In the end, a healthy industry will emerge, set for the next cycle.
The length of the cycles is tough to predict, downward price corrections tend to occur much faster than price increases. The boom of the 80’s collapsed over about a 3-4 year period and took 20 years to recover. In today’s world of instant results, the cycle period seem to be accelerating. The current decline has occurred in a little over one year, and we are approaching the bottom. If a similar ratio of time applies, and after a couple of false starts, it may be 5+ years before the industry is healthy again.
I don’t subscribe to the idea of oil prices in the $10-20 range forever, but the industry is in for more misery before a significant price rebound can be expected, so plan accordingly.
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