As oil industry players rein in capital spending, slash payrolls, park drilling rigs and shift costly projects from the drawing board to the basement cupboard, it's getting harder to see the sunlight through the gathering storm clouds.
But there are rays of hope that at least a modest price recovery will occur sooner than the doom-and-gloom, $20-oil crowd would have us believe.
Oil could rise to an equilibrium level of about $65 (U.S.) a barrel within the next 12 months thanks to a pickup in demand largely centred in the United States, Blackrock Investment Institute says in a report detailing the sweeping global impact of the commodity's steep plunge.
"It would only take a moderate shift in demand to restore balance to the oil market," because spare production capacity is a mere 4 per cent, Blackrock says. That compares with excess supplies of about 18 per cent during similar price nosedives that pummelled producers in the mid-1980s.
Any price drop of more than 15 per cent in a single quarter makes it four times more likely that demand will rise in the following three months than if prices had dipped by smaller amounts, says Ewen Cameron Watt, BII's chief investment strategist. "And we've had that."
He notes that the average hourly wage in the U.S. can now purchase 10.1 gallons of gasoline at the pump, compared with 5.7 a year ago. "So we think that there's going to be a demand response" that will combine with slowing production growth (not outright cutbacks) to stabilize the market relatively quickly.
Looking beyond gasoline demand to other parts of the U.S. economy, Blackrock analysts conclude that housing and durable goods could emerge as winning sectors, if previous oil plunges are any guide. The drivers: rising consumer confidence, higher cash flows and lower financing rates resulting from falling inflation.
The report does add one note of caution here. Interest rates had a lot more room to decline in 1983 and 1986 than this time around. And household debt is significantly higher.
Like most other oil watchers, BII doesn't see the Saudis or other major producers cutting supply to boost prices, at least not this year. And that includes the heavily leveraged U.S. shale industry.
"U.S. shale operators are particularly susceptible because they have relatively little capital invested and their wells run dry fast. This will eventually lead to falling production – although we think 2015 will be more about declining rates of growth than an absolute contraction."
The Saudis and their Gulf allies, by contrast, have deep enough pockets and low enough production costs to keep the taps wide open. Still, we can expect the likes of Kuwait and the other emirates to start drawing on their sovereign wealth funds to cover budget shortfalls.
But as Mr. Watt notes: "There won't be major fire sales, because they can tough it out for a quite a period of time."
Blackrock strategists also dismiss a prevailing view that cheaper oil and gas will hurt demand for renewable sources of energy. Costs have fallen dramatically for wind and solar power, which is largely earmarked for electricity production in any case, where oil is a minor factor.
Renewables "have essentially decoupled from lower oil prices," Blackrock says.
The major exception to the decoupling notion – vehicles designed to run on more environmentally friendly alternatives to gasoline – is enough to give Elon Musk and his Tesla investors a bad case of heartburn.
Car dealers are already peddling more of the large gasoline-powered vehicles beloved by Americans.
"A prolonged period of low oil prices could set back development of alternative fuels," Blackrock says drily. But that's a problem for another day.